(1.) THE respondent, in this appeal, had instituted a suit for alleged balance due in the price of coir said to have been purchased by the 1st defendant, a firm. Defendants 2 to 5 were alleged to be partners of the firm. In the suit, the plaintiff (respondent herein) took out attachment before judgment of the goods belonging to the firm. THE third defendant the present appellant got the attachment released by executing a surety bond, marked as ex-P1 in this proceedings, by which he made himself liable for payment of the amount that might be found due to the plaintiff from the Ist defendant and the second defendant (who was described in the said bond as the sole proprietor of the Ist defendant-firm), in the decree to be passed in the suit in case the said amount could not be realised from defendants 1 and 2. THE surety bond was filed in court on 15-7-1957. On 20-9-1957, plaintiff and defendants 1 and 2 compromised the suit by filing a petition marked as Ex-B4 in the proceedings. Defendants 3 to 5 were removed from the party array. In the compromise decree that was passed on the same date, i. e. , 20 91957, it was provided that the plaint amount, costs and interest less Rs. 250/- remitted by the second defendant was to be paid before 30 61958 (nine months from date of compromise), in default of which the plaintiff was entitled to realise the said amounts from the assets of the Ist defendant and also from the 2nd defendant. It was also provided therein that the third defendant's liability, as surety, was to subsist though strangely enough he was removed from the party array and was not made a party to the compromise.
(2.) WHEN execution of this compromise decree was sought against the third defendant, he objected to the execution contending that he is exonerated from liability in view of the contract between the plaintiff and defendants 1 and 2 by which the principal debtor was given time for payment without the concurrence of the surety. For this contention, the appellant-third defendant relied on S. 135 of the Indian Contract Act which is as follows: "a contract between the creditor and the principal debtor, by which 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". The executing court upheld this objection; but on appeal by the decree-holder, the District Court overruled this plea and the decree-holder was allowed to proceed against the surety, third defendant, in accordance with ex-P1 surety bond. In the second appeal filed by the third defendant-surety, a learned judge of this court referred the matter to a Division Bench in view of the importance of the question raised The learned counsel for the appellant strongly contended that when the plaintiff agreed to give nine months' time to the second defendant, the principal debtor for paying off the debt, that necessarily discharged the surety who has not concurred with this granting of time. It is a well recognised rule that a contract by a creditor to give time to the principal debtor discharges the surety. The principle underlying this rule is that the surety is entitled at any time to require the creditor to call upon the principal debtor to pay off the debt or himself pay off the debt and when he has paid it off he is at once entitled to sue the principal debtor; and if the creditor has bound himself to give time to the principal debtor, the surety cannot do either the one or the other of these things until the time as given has elapsed. See Rouse v. Bradford Banking Go. ( (1894) 2 Ch. D. 75) and Annadana jadaya Goundar v. Konammal AIR. 1933 Mad. 309 (at page 312 the dictum in the aforementioned English case is quoted with approval ).
We are in agreement with the contention of the learned counsel for the appellant that this rule applies squarely to this case. As early as 1795 in Bees v. Borrington ( (1795) 2 Ves 540), Lord Loughborough, L. C. held that when a creditor gives time to the principal debtors, the surety is released from his obligation as his rights have been interfered with behind his back by granting time to the principal debtors. In Polak v. Everett ( (1876) 1 Q b. D. 669 at p. 673) Blackburn, J, said: "it has been established for a very long time, beginning with Rees v. Berrington 2 Ves 540 to the present day, without a single case going to the contrary, that on the principles of equity a surety is discharged when the creditor without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the surety-ship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether. The reason given for this, as stated in Samuell v. Howarth 3 Mer. 272, 279 by Lord eldon, is because the creditor, by so giving time to the principal, has put it but of the power of the surety to consider whether he will have recourse to his remedy against the principal or not; and because he in fact cannot have the same remedy against the principal as he would have had under the original contract. And he adds: "the creditor has no right, it is against the faith of his contract, to give time to the principal, even though manifestly for the benefit of the surety, without consent of the surety, "the principle being, as I understand it, that as it is very undesirable that there should be any dispute or controversy about whether it is for his benefit or not, there shall be the broad principles, that if the creditor does intentionally violate any rights the surety had when he entered into the suretyship, even though the damage be nominal only, he shall forfeit the whole remedy. Whether that was a good or a just principle originally, is a matter which it is far too late to think about now".
This principle has been reiterated in Charles Dudley, robert Ward v. National Bank of New Zealand ( (1883) 8a. C. 755 at p. 763), mahant Singh v. Ubayi (1939 A. C. 601 at p. 606) and Midland Counties Motor finance Co. Ltd. v. Slade (1951-1 K. B. 346 at p. 352 ).
(3.) THIS rule has been given statutory recognition in s. 135 of the Indian Contract Act. Though having regard to the definition in s. 126 of the Indian Contract Act, S. 135 cannot in terms apply to a transaction where the surety bond is given to the court, there can be no doubt that the principles underlying these provisions can be applied. See Parvatibai v. Vinayak Balvant (AIR. 1939 Bom. 23), Ramachandra Bhagwat v. Tukaram (AIR. 1959 bom. 516) and Parthi Singh v. Ram Charan Aggarwal (AIR. 1944 Lah. 428 ).
The learned counsel for the appellant cited a large number of decisions of the Indian courts for the proposition that the surety is relieved if the creditor gives time to the principal debtor without his consent. However, in the well settled state of law in the matter, we do not consider it necessary to refer to all those decisions.;