B. L. NANJAPPA v. SANGLI BANK LIMITED — 1998 DIGILAW 460 (KAR)

HARINATHTILHARI, J. ( 1 ) THIS Revision Petition under section 18 of the Karnataka Small causes Courts Act, arises from the judgment and decree dated 12th March, 1997 delivered by the VI Addl. Judge, Court of Small Causes, bangalore (Shri K. Ninge Gowda), decreeing the plaintiff's suit for a sum of Rs. 10,462. 43 ps. with current and future interest at the rate of 18. 5. per cent per annum on the sum of rs. 10,000/ -. ( 2 ) THE facts of the case in a nut-shell are that the plaintiff filed O. S. No. 5445/93 against defendants 1 to 3 for recovery of a sum of rs. 10,462. 43ps with current and future interest with costs. The case of the plaintiff-respondent has been that the first defendant borrowed a sum of Rs. 5,000/- from the plaintiff on 26. 2. 1983 for the purpose of improving his business, which was run by him under the name and style of "m/s Sheetal Travel Agencies', agreeing to repay the said amount of loan with interest at the rate of 18. 5% p. a. compounded quarterly and the first defendant, in this connection, had executed a promissory note. agreement of pledge, letter of lien and set off dated 26. 2. 1983 and continuing security letter dated 26. 2. 1983 in favour of the plaintiff- respondent. According to the plaintiff's case. defendants 2 and 3 stood guarantee and executed letter of guarantee dated 26. 2. 1983 in favour of the plaintiff-respondent. According to the plaintiff, the first defendant was very irregular in repayment of the loan and he was due in a sum of Rs. 7,566. 83 as on 28. 6. 1985 to the plaintiff. On 12. 7. 1985, according to the plaintiff's case, the first defendant had executed a letter of confirmation. On 10. 1. 1985, the first defendant had acknowledged the liability by executing of a letter of acknowledgement. Further, the plaintiff's case is that in spite of repeated demands and legal notice, the defendants has not repaid the amount in question which amounts to Rs. 10,462. 43ps. as on 31. 3. 1987. In view of the above circumstances, the plaintiff had filed S. C. No. 5445/93 before the Court below praying for a decree, recovery of aforesaid sums with past and future interest as mentioned above. 10,462. 43ps. as on 31. 3. 1987. In view of the above circumstances, the plaintiff had filed S. C. No. 5445/93 before the Court below praying for a decree, recovery of aforesaid sums with past and future interest as mentioned above. ( 3 ) DEFENDANTS 1 and 2 (defendant 2 is the petitioner herein) filed a written statement, but the third defendant did not put in appearance, though served, and he was treated as exparte before the trial Court. It has been admitted that first defendant borrowed a sum of rs. 5,000/- from the plaintiff on 26. 2. 1983, but denied that they agreed to pay interest at the rate of 18. 5% p. a. According to the defendants, the loan was taken under the self-employment scheme with interest at the rate of 10. 5% p. a. and there was no agreement to pay interest at the rate of 18. 5% p. a. at quarterly rest. According to the first defendant, he suffered loss in the business, closed down his business and therefore, he could not repay the amount of loan. As regards the execution of guarantee dated 26. 2. 1983, they admitted the same. They contended that neither they gave their consent for continuation of the loan amount, nor they continued their guarantee. The defendants denied execution of any acknowledgement of debt or confirmation letter. They also denied issuance of notice to them by the plaintiff. Plea of limitation was also raised and it was asserted that the rate of interest charged at 18. 5% p. a. was exorbitant. On the basis of the above pleadings of the parties, the trial Court framed the following issues :"1. Whether the plaintiff has proved that the defendants have agreed to pay interest @ 18. 5% per annum compounded quarterly? 2. Whether the suit is in time? 3. Whether the plaintiff is entitled to the suit claim 4. What decree or order?" ( 4 ) AFTER consideration of the material evidence on record, the Trial Court held that the plaintiff has proved that the defendants had agreed to repay the loan with interest at the rate of 18. 5% p. a. at quarterly rest. The Trial court also came. to the conclusion that the suit is not barred by time in view of Clause (7) of the guarantee, which clearly indicates that the guarantee shall be continuing and shall remain in force. 5% p. a. at quarterly rest. The Trial court also came. to the conclusion that the suit is not barred by time in view of Clause (7) of the guarantee, which clearly indicates that the guarantee shall be continuing and shall remain in force. It is further found that the first defendant had executed the confirmation letter dated 12. 7. 1985 admitted the balance due in a sum of Rs. 7,566. 83 ps. as on 28. 6. 1985 as per Ex. P. 7. As per Ex. P. 8 the first defendant had executed the acknowledgement on 10. 1. 1985 admitting the debt. The Court below found that as per Ex. P. 5, the second de fendant had executed the guarantee letter, which clearly states that the guarantee is a continuing and irrevocable guarantee and it shall remain in force until it is cancelled. Thus having recorded the above findings, the Court below has decreed the suit with costs, as prayed for by the plaintiffs. Feeling aggrieved by the said judgment and decree, the petitioner-second defendant - (one of the sureties, i. e. , guarantor) has come up in revision before this Court under Section 18 of the Karnataka Small Causes Courts Act. ( 5 ) IT has been urged on behalf of the revision petitioner that the principal-debtor had filed Insolvency Case No. 19 of 1988 for the purpose of his adjudication as an insolvent under the Provincial PROVINCIAL INSOLVENCY ACT, 1920, and as soon as this fact was brought to the notice of the Trial Court in the course of suit, i. e. S. C. No. 5445/1993 against the sureties should have been dismissed. The learned Counsel for the petitioner contended that once the insolvency case has been instituted, by operation of the law, the Trial Court lost jurisdiction to deal with the suit and in every case the jurisdiction and authority to pass any decree against the petitioner, guarantor. He further contended that in view of the provisions of the Sections 133 and 135 of the Contract Act, the plaintiff's suit ought to have been dismissed against the surety as by his own act of insolvency, of the principal-debtor, the surety stood discharged and therefore, the petitioner was not liable to satisfy the decree. He further contended that in view of the provisions of the Sections 133 and 135 of the Contract Act, the plaintiff's suit ought to have been dismissed against the surety as by his own act of insolvency, of the principal-debtor, the surety stood discharged and therefore, the petitioner was not liable to satisfy the decree. As regards to the filing of the insolvency case by the principal debtor, there is no dispute between the parties, and this fact was not denied on behalf of the respondent-plaintiff. It has further been contended that the liability of the surety being co-extensive with that of the principal debtor, unless it is otherwise provided by the contract, the impact of the principal debtor being declared insolvent, is that his properties stand vested in the receiver appointed by the Court. The assets and liabilities of the insolvent having gone into the hands of the Court receiver for discharge of the provable debt and thereafter the debt and liabilities of insolvent standing discharged, as a result of releasing the principal debtor, the surety also stood discharged of his liability arid the surety cannot be made liable to pay off any sum towards the guaranteed debt. The counsel for the petitioner contended that though such a plea was taken before the court below, but it failed to consider the same. In a nut-shell the contention of the learned counsel for the petitioner is that after the adjudication of principal debtor as insolvent, the proceedings could not continue and the surety could not be made liable to pay the said debt and as such the decree passed against the defendant-petitioner, i. e. , surety was illegal. The learned counsel for the revision petitioner made a reference of the provisions of Contract act, and in particular, referred to Sections 128 and 140 of the Contract Act and also to certain case law to be dealt with hereinafter. ( 6 ) ON behalf of the respondent, it has been contended that the surety is always liable to pay the amount due by the principal debtor and the said liability does not come to an end until the time the principal debtor has paid-off the amount. The learned counsel further contended that the fact that the principal debtor has become insolvent does not affect the liability of the surety to make payment of the amount guaranteed by him. The learned counsel further contended that the fact that the principal debtor has become insolvent does not affect the liability of the surety to make payment of the amount guaranteed by him. It is further contended that the very provisions of the PROVINCIAL INSOLVENCY ACT, 1920 as well, under common law, the liability of the surety for payment of amount of debt the payment of which the surety has guaranteed does not come to an end until it is paid back either the principal debtor or any of the guarantors, i. e. , sureties. The contract of surety or guarantee and liability thereunder is quite separate and independent. He has also made references to certain decisions to be discussed and referred to at proper places. ( 7 ) BEFORE I proceed to examine these contentions, it would be appropriate to mention that so far as the question of principal debtor being adjudicated insolvent, there is no dispute on it. There is no dispute between the parties that the revision petitioner has been a guarantee or surety for repayment of the loan amount paid by the Bank, i. e. , plaintiff-respondent to the first defendant. It will be appropriate at this juncture to make a reference to the relevant provisions of the Contract Act. which deals with the contract of guarantee or the surety. Section 126 of the Contract Act reads as under:"126. 'contract of guarantee', 'surety', 'principal debtor' and 'creditor'.-A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'. The person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written. "section 128 of the Act deals with the liability of the surety and provides that liability of surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Section 140. qf the Act deals with rights of surety and provides as to when the rights of creditor stand vested in the surety and reads as under:"140. Section 140. qf the Act deals with rights of surety and provides as to when the rights of creditor stand vested in the surety and reads as under:"140. Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor". Section 128 of the Contract Act, as quoted above speaks or reveals that unless and until there is a contract to the contrary, the liability of the surety is co-extensive with that of the principal debtor. Section 140 of the Act provides that the right of the creditor on debt in question having become due or on default on the part of the principal debtor to pay or perform the act guaranteed, on the surety having made the payment or performance of all that he is liable for, surety stands invested with all the rights, which the creditor had against the principal debtor. This Section provides that the surety upon payment of all that he is liable for, is immediately invested, with all the rights which ' the creditor had against the principal debtor, the condition, laid down as per the Section for his right to arise, is the payment by surety of all that he is liable to pay and on the payment of all that he is due. to the creditor for payment of guaranteed debt to whom he stood surety. The moment the surety makes payment of that amount which the principal debtor had to pay and which became due, of which principal debtor's default to pay the surety steps in the shoes of the creditor. ( 8 ) IN the case of The Bank of Bihar Ltd, v. Dr. Damodar Prasad and Another, it has been laid down as under :". . . . UNDER Section 128 of the Indian contract Act, save as provided in the contract, the liability of the surety is coextensive with that of the principal debtor. The surety became thus liable to pay the entire amount. His liability was immediate. It was not deferred until the creditor exhausted his remedies against the principal debtor. . . . UNDER Section 128 of the Indian contract Act, save as provided in the contract, the liability of the surety is coextensive with that of the principal debtor. The surety became thus liable to pay the entire amount. His liability was immediate. It was not deferred until the creditor exhausted his remedies against the principal debtor. Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As lord Eldon observed in Wright v. Simpson (1802) 6 Ves Jun 714 at p. 734 : 31 ER 1272 at p. 1282: 'but the surety is a guarantee; and it is his business to see whether the principal pays, and not that of creditor'. In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings. "in para-6, their Lordships further observed:". . . . BUT the solvency of the principal is not a sufficient ground for restraining execution of the decree against the surety. It is the duty of the surety to pay the decretal amount. On such payment, he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. "the same view has been reiterated by their lordships of Supreme Court in the case of state Bank of India v. Index Post Registered. ( 9 ) DEALING with the question of liability of the surety, a Division Bench of this Court in the Hukumchand Insurance Co. Ltd. v. The bank of Baroda and Others, speaking for the bench, Hon'ble M. N. Venkatachalaih J. , (as he then was) has been pleased to observe at p. 208 as under:"the question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not a/so, in all cases, arise simultaneously. " ( 10 ) AS mentioned earlier, from the above cases it is clear that a contract of guarantee makes the liability of surety to be co-extensive with that of the principal debtor until "and unless, otherwise agreed upon, but yet it is open to the creditor to recover the money from the surety independent of the principal debtor. The contract of surety though emerges from the same transaction, it creates the right and liability, which are distinct from the rights and liabilities created by contract of loan between the principal debtor and the creditor, But subject to the contract to the contrary, so long as the debt of the principal debtor is not discharged i. e. paid, the liability of the surety remains in. tact. This is what extensively expressly the language used in Section 128 of the contract Act indicates. The extent of the liability of the surety as mentioned in Section 128 of the Contract Act is to be taken to be limited to the liability and extent of liability to the principal debtor. The right of the creditor is to realise the amount guaranteed to be paid by the principal debtor. He, no doubt, has a right to proceed against the surety for recovery of the amount. The rights of the creditor do vest in the surety against the principal debtor, i. e. surety surrogated to the position of the creditor. Here, in the present case, the question is the proceedings under the PROVINCIAL INSOLVENCY ACT, 1920 having been started or principal debtor having been adjudicated as insolvent whether the surety is discharged of his liability to pay. Sections 133,134 and 135 of the Contract Act reveal the acts of commission or omission; the circumstances and situations, when the surety stands discharged. Sections 133,134 and 135 of the Contract Act reveal the acts of commission or omission; the circumstances and situations, when the surety stands discharged. The reading of these sections per se reveals that in such cases as dealt under these Sections 133,134 or 135 of the contract Act, the discharge of surety is to take place on account of specific acts of commission or omission of the creditor or both principal debtor and of the creditor. The aforesaid provisions of Sections 133, 134 or Section 135 of the Contract Act deal with circumstances, and acts, as referred therein such variance of terms of contract of debt or the creditor and debtor without information and consent or assent of the surety (vide Section 133 ). That Section 134 of the Contract Act provides that the surety stands discharged or say is discharged if a contract is entered into between creditor and principal debtor by which principal debtor is released or in case where the principal debtor is discharged as a legal consequence of any act or omission of the creditor. Similarly, Section 135 provides that where the creditor by a contract with the principal debtor compounds with or promises to give time to principal debtor or promises not to sue the principal debtor, in such cases, if these acts or promises, contracts to compound etc. , as above, have been done or entered into, without surety's assent or consent, such acts or contracts between creditor and principal debtor will, automatically discharge the surety. That section 139 similarly provides for discharge of surety as a result of creditors acts or omission which impair the surety's remedy. Sections 136,137 and 138 specify the act or omissions of creditor as referred to therein and provides those acts will not discharge the surety. That Section 142 and section 143 provide that where the creditor obtained guarantee by misrepresentation concealments, by means of keeping silence as to material circumstances, shall be invalid. Thus a perusal of the provisions reveal that under Contract Act emphasis is on acts of commission or omission of creditor or creditor and principal debtor which may result in discharging the surety and in rendering the guarantee invalid and inoperative and surety discharged. Thus a perusal of the provisions reveal that under Contract Act emphasis is on acts of commission or omission of creditor or creditor and principal debtor which may result in discharging the surety and in rendering the guarantee invalid and inoperative and surety discharged. ( 11 ) THERE appears no provisions under the Contract Act nor any has been referred which may said to render surety discharged on the ground that of principal debtor's being adjudged insolvent or of his, i. e. principal debtor's being discharged. The learned counsel for the revision petitioner Mr. S. P. Shankar strongly relied on Section 128 of the Contract act and urged that as the liability of surety being co-extensive with that of principal debtor as such once principal debtor's liability came to an end as a result of his adjudication as insolvent, so surety will also stands discharged. Before examining the contentions based on section 128 of the Contract Act, it appears to me to be just and proper to have a view of the provisions of Sections 140 and 141 of the Contract Act. ( 12 ) READING of Section 140 as stated earlier, along with Sections 141 and 145 of the Contract Act clearly reveals that a surety has got a right to indemnified by the principal debtor, and he is entitled to recover from the principal debtor sums which have been payable by the guarantee and had been paid by surety to creditor towards the guaranteed debt on debts having become due or payable by principal debtor and surety is entitled as per section 141 to benefits of every security which the creditor has against the principal debtor at the time when the contract of suretyship has been 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. Again Section 141 of the Contract act per se reveals and refers to act of losing or of parting with the security by creditor and provides in such case of loss or parting of security without surety's consent, by creditor, surety will stand discharged to the extent of loss or parting of security. Again Section 141 of the Contract act per se reveals and refers to act of losing or of parting with the security by creditor and provides in such case of loss or parting of security without surety's consent, by creditor, surety will stand discharged to the extent of loss or parting of security. ( 13 ) IN the context of the question involved in this case, it will be most appropriate to take into consideration the relevant provisions of provincial PROVINCIAL INSOLVENCY ACT, 1920. Section 28 of the Provincial Insolvency act deals with adjudication. Sub-section (6) of section 28 of the PROVINCIAL INSOLVENCY ACT, 1920 provides that nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this order of adjudication under this section had not been passed. Section 29 of the Provincial Insolvency act provides that notice of an order of adjudication of the insolvent, the date of the adjudication, the period within which the debtor shall apply for his discharge, shall be published by the Court by which adjudication is made, in the official gazette and in such other manner as may be prescribed. Section 41 of the Provincial Insolvency act deals with discharge, and Section 44 thereof provides for the effect of the order of discharge. Section 44 reads as under :"44. Effect of order of discharge.- (1) An order of discharge shall not release the insolvent from- (a) any debt due to the Government: (b) any debt or liablity incurred by means of any fraud or fraudulent breach of trust to which he was a party; (c) any debt or liability in respect of which he has obtained forbearance by any fraud to which he was a party; or (d) any liability under an order for maintenance under Section 488 of the Code of Criminal Procedure, 1898 (5 of 1898 ). (2) Save as otherwise provided by subsection (1), an order of discharge shall release the insolvent from all debts provable under this Act. (2) Save as otherwise provided by subsection (1), an order of discharge shall release the insolvent from all debts provable under this Act. (3) An order of discharge shall not release any person, who at the date of the presentation of the petition, was a partner or co-trustee with the insolvent, or was jointly bound or had made any joint contract with him or any person who was surety for him. "thus Section 44 of the Provincial Insolvency act refers to the order of discharge and its effect. In Halsbury's Laws of England, IV edition (Vol. 3) under the Chapter dealing with bankrupcy and Insolvency - (page 479-para- 880) it has been mentioned that an order of discharge does not release any person who, at the date of the receiving order, was a partner or co-trustee with the bankrupt, or was jointly bound or had made any joint contract with him, or any person who was surety or in the nature of a surety for him. This principle has been followed while interpreting Section 44 (3) of the provincial PROVINCIAL INSOLVENCY ACT, 1920 by the Peshawar High court in Thakar Das v. Phagwa, wherein it has been observed thus :". . . NORMALLY a surety is discharged when the principal debtor is discharged from the liability for paying the debt. The legislature enacted this provision of law in order to avoid this result in the case of a discharge given to a bankrupt by a court of law. It implies that the surety continues to be liable throughout the insolvency proceedings and makes explicit that even after discharge his liability does not cease to exist. " ( 14 ) AS per reading of the above observation, it is clear that a surety is not discharged when the principal debtor is discharged from the liability for paying the debt on account of the adjudication of the principal debtor, i. e. , on the principal debtors being adjudged, as insolvent,, as per Section 44 (3) of the Provincial provincial INSOLVENCY ACT, 1920. The Contract Act as mentioned earlier, does not provide under it that the surety will be stand discharged on principal debtor's being adjudicted as insolvent or an order of discharge being passed, discharging the principal debtor: ( 15 ) IN the case of In re: Fitzgeorge Exparte robson, the learned Judge observes that"i think in this case the creditor is entitled to prove the value of the guarantee that the debtor has given, it is said that because the principal debtor is gone, the liability under guarantee to pay the interest on the venture is also gone. I do not agree with that view. The Principal debtor has gone, no doubt, but not by any act of the creditor; it has gone by operation of law. The principal debt will never be repaid, but in my opinion, obligation of the debtor to pay the interest under his guarantee remains. ' this view of Kings Bench (Division) has been followed by the Supreme Court in the case of maharashtra State Electricity Board v. The official Liquidator High Court, Ernakulam and Another. In that case, in connectio'n with the liquidation of-a Company, the Supreme court was considering the question of the effect of liquidation proceedings on the right of the Board to recover from the Bank the guaranteed demand. The Supreme Court while dealing with that matter and in the context of section 128 of the Contract Act and also section 134 of the Contract Act, observed and laid as under : ". . . under Section 128 of the Indian Contract act, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the indian Contract Act 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. . . " the Supreme Court further observed "that a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a Company) does not absolve the surety of his liability; (See Jagannath Ganeshram Agarwala v. Shiuanarayan Bhagirath. See also In re. Fitzgeorge ex parte Robson (supra ). . . " the Supreme Court further observed "that a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a Company) does not absolve the surety of his liability; (See Jagannath Ganeshram Agarwala v. Shiuanarayan Bhagirath. See also In re. Fitzgeorge ex parte Robson (supra ). " In this view as above their Lordships of the Supreme court observed that "it is very clear now that an order of discharge of the principal debtor secured under the law relating to Bankruptcy or insolvency or in case of a Company in liquidation proceeding does not absolve or release the surety of his liability under the contract of guarantee. "the co-extensiveness of surety's liability with that of principal debtor is with reference to the extent of guaranteed debt and interest accruing thereon as revealed by illustration to section 128. It is no relation with the mode of discharge of principal debtor's liability qua surety's liability and surety's liability continues to pay debts sum even if debtor stands discharged fully or partly under law of Insolvency on the adjudication as insolvent of a principal debtor or his discharge. The surety does not stand absolved or discharged thereby from liability to pay off that guaranteed debt as surety by virtue of contract of guarantee, and the debt itself is to be discharged or paid off- (See: national Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. and Another) and State banfc of India v. Madhya Pradesh Iron and steel Works Pvt. Ltd. , Raipur and Others. The learned counsel for the petitioner contended that the view expressed by some high Courts in India may lead to art inequitable position under the law as the surety may not be able and entitled to realise and be indemnified, for sums paid by him, from the principal debtor. He made reference to the decision of Allahabad High Court and Madras High court in the cases of Gangadhar v. Kanhai and Nalliya Goundan v. Marappa Goundan. He made reference to the decision of Allahabad High Court and Madras High court in the cases of Gangadhar v. Kanhai and Nalliya Goundan v. Marappa Goundan. In Gangadhar's case, referred to above, the allahabad High Court has laid down the proposition that when the principal debtor is adjudicated insolvent and discharged and the surety pays his debts contracted before the adjudication the surety cannot recover the amount so paid, from the debtor as he is released from the debt, on account of the debt being a provable one under the PROVINCIAL INSOLVENCY ACT, 1920. The learned Counsel submitted that surety has no doubt, a right of recovery from the principal debtor and the liability of insolvent to indemnify his surety is provable under the Act. Though the liability of an insolvent to indemnify his surety is a contingent liability as it is a liability under Section 44 (2) and an order of discharge absolves the insdlvent from that liability also. His inability to claim a dividend after proof cannot stand in the way of this liability being one which comes within the purview of Section 34 (2 ). This is a case of contingent liability, and that liability can be fastened only if the surety has made payment of the amount, a liability which was discharged by the principal debtor concerned by operation of law and PROVINCIAL INSOLVENCY ACT, 1920. ( 16 ) SO far as the debtor under the Insolvency act is concerned, Section 34 of the Act provides that debts which have been excluded from the schedule on the ground that their value is incapable of being fairly estimated and demands in the nature of unliquidated damages arising otherwise than by reason of a contract or a breach of trust shall not be provable under the Act. Sub-section (2) of section 34 provides that all debts and liabilities, present or future certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable under the Act and the due which is recoverable from-the creditor, but the one which was not so as above before the date of adjudication it will not come under the purview of section 34. Section 44 (3) very clearly provides that an order of discharge shall not release any person who, on the date of the presentation of the petition, was a partner or co-trustee with the insolvent, or was jointly bound or had made any joint contract with him or any person who was surety for him. Debtor's liability, not incurred or accrued before the date of adjudication cannot be said to be the debt providable under Section 34. So far as the debt of the creditor is concerned, it is under a different contract. So far as the relationship or otherwise under contract of guarantee as mentioned earlier, it is a separate and distinct contract, wherein the surety gives a guarantee to payoff and discharge the debts or obligation of the principal debtor. No liability accrues or can be said to have accrued or stood fastened on the principal debtor with reference to the surety or guarantee until the conditions of Section 140 are established, i. e. , until the surety has paid off that guaranteed debt due on the principal debtor, after the guaranteed debt becomes due or until or after the default on the part of the principal debtor has taken place, and thereafter the surety has paid off the amount. It is only after the payment of the amount by the surety, in relation to principal debtor, the principal debtor becomes liable to reimburse and all the rights of the original creditor stand vested in the surety. In other words, it is after the payment of the guaranteed debt by the surety on behalf of the principal debtor as above the surety becomes entitled to and vested with the creditor's rights against the principal creditor. The right of reimbursement or 1 may say, the rights under Section 140 will not vest or will not accrue in favour of the surety until the surety has made payments of the guaranteed debt. The right of reimbursement or 1 may say, the rights under Section 140 will not vest or will not accrue in favour of the surety until the surety has made payments of the guaranteed debt. If in any case that surety had made the payment of the guaranteed debt before adjudication of the principal debtor, it may be said to be a provable debt under Section 34 against the principal debtor after he has been adjudged insolvent, but where the payment has been made by the surety to the creditor after adjudgment, no liability can be said to have accrued in favour of the surety against the principal debtor before adjudication or discharge, and in that case, it cannot be said that such a liability or debt should be deemed to be provable act in the course of insolvency proceedings and in such an event sub-section (2) of section 44 may not apply and that the order of discharge shall not release the insolvent (principal debtor) as regards the liability of principal debtor from the entitlement of the surety to be reimbursed. ( 17 ) AS per the language used in Section 140 of the Contract Act, the rights which the creditor has against the principal debtor stand vested in the surety only when the conditions precedent under Section 140 of Contract Act are fulfilled, which are that the guaranteed debt has become due or there takes place a default of the principal debtor, to perform guaranteed act, or, to pay the guaranteed debt and thereupon, the surety makes the payment of guaranteed debt or performs the job guaranteed. After these conditions are fulfilled and stand established, then only the surety gets invested with the rights of the creditor against the principal debtor. Until that is not vested, it cannot be said that the liabilities or debt had been incurred by the principal debtor qua the guarantee, i. e. , surety to reimburse the same. Subsection (2) of Section 44 of the PROVINCIAL INSOLVENCY ACT, 1920 makes it clear that any liability arising from a provable debt under Section 34 (2) disappears when order of discharge is made. When liability of insolvent to indemnify his surety has come into being before his (debtor's) adjudication and appears to be provable under the Act, then an order of discharge it may be argued may absolve the insolvent from the liability. When liability of insolvent to indemnify his surety has come into being before his (debtor's) adjudication and appears to be provable under the Act, then an order of discharge it may be argued may absolve the insolvent from the liability. The debts, so far as the liability with reference to the surety to pay all the amount, which he has paid to the creditor on behalf of the principal debtor, if the payment has been made during the course of adjudication proceedings or after the adjudication or after discharge, it cannot be said to be debts and liabilities incurred by the principal debtor at the time of or before his adjudication of insolvent, even though incurred before his discharge, cannot be said to be a provable debt for the purposes of Section 34 of the Act read with Section 44 (2) thereof. It is really a liability arising and incurred subsequent in such cases to the adjudication, or even discharge, if the guaranteed debt has been paid by the surety either in full or part after adjudication or after discharge. Thus considered, I am unable to agree with the view expressed by Dalai, J. , in the case of gongadhar (supra) as well as the view expressed by the Madras High Court in Nalliya goundan 's case, referred to above. Thus considered, in my opinion, there is no substance in the contention of the learned Counsel for the petitioner that the payment of guaranteed debt made by the surety on behalf of the principal debtor towards guaranteed amount after adjudication or discharge of the principal debtor under the provisions of the insolvency proceedings, cannot be realised by the surety from the principal debtor. The position may be different; in cases where payment thereof is made by the surety on the date of or before the adjudication of the principal debtor as insolvent, for the reason that when the debts have been paid by the surety to the creditor before adjudication or during the insolvency proceedings declaring that the judgment-debtor is involvent, then the surety may be said to have stepped into the shoes of the creditor before adjudication, then the liability of the principal debtor towards creditor may be said to be a debt provable under Section 34 and in such an event, section 34 may be said to be applicable thereto, i. e. , transaction of debt between principal debtor and creditor. The sureties' liability may be towards creditor to reimburse, him if the principal debtor fails to pay off the guaranteed debt on its having become due and even if debtor stands discharged by operation of law of insolvency but sureties liability does not stand discharged. It is to be noted that until surety pays the guaranteed debt to creditor in such a case no relationship of debtor or creditor arises between the guarantee (surety)and principal debtor nor does a provable debt comes into picture for the purpose of Section 34 of the provincial PROVINCIAL INSOLVENCY ACT, 1920. It is after surety has paid the debt or part thereof, the debt may come into picture^ and if surety has paid the said guaranteed debt after adjudication of the principal debtor as insolvent, the principal debtor can't be taken to stand discharged under section 44. Therefore, the decisions cited above stands on a different footing and are of no help to the revision petitioner. ( 18 ) THAT as regards the contention of the learned Counsel for the revision petitioner that the Court below acted. illegally and without jurisdiction in proceeding with the suit in spite of the fact that adjudication proceeding being brought to its notice, and the Court below did not dismiss the suit. As mentioned earlier, section 29 of the PROVINCIAL INSOLVENCY ACT, 1920 is very clear and it reads thus :"29. illegally and without jurisdiction in proceeding with the suit in spite of the fact that adjudication proceeding being brought to its notice, and the Court below did not dismiss the suit. As mentioned earlier, section 29 of the PROVINCIAL INSOLVENCY ACT, 1920 is very clear and it reads thus :"29. Stay of pending proceedings.- any Court in which a suit or other proceedings is pending against a debtor shall, on proof that an order of adjudication has been made against him under this Act, either stay the proceedings, or allow it to continue on such terms as such Court may impose. "a reading of the said section reveals that the power has been given to the Court in which a suit or other proceeding is pending against the debtor, the Court may either to stay the proceedings or allow it, to continue on such conditions, which may be imposed by the court. The expression 'shall' has been used here, but it appears to have been used as 'may' because what the Court is required, by use of expression 'shall' is "either stay the proceedings or allow It to continue imposing certain conditions. " The Court is not always bound in every such case to stay the suit or proceedings on the debtors being adjudicated as insolvent. It provides that the Court shall either stay the proceedings of allow those proceedings to continue on such conditions as it deems fit. No doubt, in order to exercise its discretionary power under Section 29, it is incumbent on the Court to judiciously consider whether it should be stayed or whether there was circum-stance justifying the continuance of the suit. No doubt, this is the principle of law as laid down by tis Court in V. R. Narayana Murthy v. K. S. Jagannatha and Bros. , l. may emphasise the proceedings of the suit shall not automatically stand stayed by adjudication of the principal debtor as insolvent against whom a suit had been filed or is pending. The proceedings may be stayed or may to continue as per the order of the Court concerned. Thus considering, if the Court did not stay the proceedings, it cannot be said that the court has committed a jurisdictional error. The proceedings may be stayed or may to continue as per the order of the Court concerned. Thus considering, if the Court did not stay the proceedings, it cannot be said that the court has committed a jurisdictional error. ( 19 ) IN my opinion, even if at all there was any irregularity in exercise of discretion it cannot be said to be suffering from jurisdictional error, substantial nature causing in irreparable injury to the petitioner. The revision petitioner should have filed application under Section 29 of the PROVINCIAL INSOLVENCY ACT, 1920, if he was so anxious. Thus in my considered opinion, it comes out that (i) the liability of the surety for the payment of guaranteed debt of the principal debtors on it becoming due, or on the principal debtor's failure to pay to creditor under the contract of guarantee though arise from series of transactions is distinct and independent from contract of loan between creditor and debtor; (ii) that liability of surety is co-extensive with that of the principal debtor in the sense as to the extent all the amount or sum of money to be paid under the contract; and (iii) it has no relation with the mode of discharge oi the debt liability by the principal debtor, otherwise than the payment of guaranteed debt by principal debtor. 20. No doubt, if because of the act of the creditor and the debtor, if any variation takes place or things or situations to come up, it may be a subject to be covered by Sections 133, 134 or Section 135 and the said contingency or situations resulting from inter se act of creditor and the debtor without any assent or consent of the surety, then due to such an act or conduct between the debtor and the creditor, the discharge may take place, and surety may stand discharged. But where the principal debtor stands discharged by reason of operation of law, such as provisions of the provincial PROVINCIAL INSOLVENCY ACT, 1920 or in case of company by the liquidation, then the discharge of the principal debtor by operation of law will not have the effect or releasing of discharging the surety of his liability to pay off the guaranteed debt. The suit which had been filed against the principal debtor and the surety, in my opinion, if, was not stayed, there was no illegality nor any jurisdictional error was committed by Court below and particularly in view of the provisions of Section 29 of the Insolvency act. Thus considering, in my opinion, the revision petition has got no merits and as such it has to be dismissed as the decision of the Court below decreeing the suit claim of the plaintiff- respondent against the surety, as well does not suffer any error of jurisdiction or of law and it is in conformity with law. The Revision Petition is hereby dismissed with costs. Reuisjon dismissed with costs. --- *** --- .