1. These are two appeals against two different orders passed by two different Additional District Judges in two different matters. Since one of the parties is common in both the appeals and the same question of law is involved both these appeals had been consolidated and heard together.
2. Messrs Mina Trading Company is the decree-holder in both the cases. In one appeal he is the appellant and in the other he is the respondent. Abdul Ghani is surety in Appeal No. 42/70 and is one of the respondents while Mr. Tar Mohd. Is surety in Appeal No. 399/69 and is the appellant. Now I proceed to state the facts in each case separately. Taking up Appeal No. 42/70 the decree-holder Messrs Mina Trading Company filed a suit against Mumtaz Trading Company for the recovery of the amount of Rs. 24,960 on account of refund of cash deposit and damages for breach of contract. The suit was decreed for Rs. 16,960 with costs and running interest at 6 %. Against that decree an appeal was filed by the judgment-debtor and during the pendency of the appeal an application was made under Order XLI, rule 5, C. P. C. For the stay of the execution of the decree.
3. The stay was granted subject to furnishing security for the decretal amount. Consequently Abdul Ghani stood surety for the whole amount. The surety bond executed by him reads as under :- "Whereas on the appellants application under Order XLI, rule 5 of the C. P. C. The Honourable Court on 14-7-1965 passed order. "Heard the Advocate. Interim stay with notice to the respondent.
4. Hearing 15-9-1965 and whereas on 20-10-1965 the Honourable Court passed further order for security ; and whereas by consent time was extended by order dated9-11-1965. In pursuance of the above said order the appellants offered surety in the person and property of Abdul Ghani son of Wali Muhammad Muslim adult, residing at Karachi, who has been accepted by consent.
5. Now, therefore, I, Abdul Ghani son of Wali Muhammad Muslim adult, residing at Karachi, do hereby voluntarily become surety for the appellants in the sum of Rs. 18,811.90 (,Rs. Eighteen thousand eight hundred eleven and paisas ninety) only plus interest @ 6 % from the date of suit till realisation, and hereby bind myself and my heirs firmly by these presents.
6. The condition of this obligation is such that if the above bounden appellants fail to pay the said sum of Rs. 18,811.90 (Rs. Eighteen thousand eight hundred eleven and paisas ninety only) plus interest at 6 % p.a. From the date of suit till realisa--tion, and/or fail to place at the disposal of the Court all and every the property then this obligation shall be enforcible against me and my property ; otherwise it shall be void and of no effect in virtue.
7. Signed and delivered at Karachi this 15th November 1965.
8. (Sd.) Executant/Surety."
9. Subsequently the decree-holder and the judgment-debtor without the knowledge and consent of the surety compromised in the following terms ; and the decree was passed accordingly :- "(1) That there shall be a decree for Rs. 16,960 (Rupees sixteen thousand nine hundred and sixty only) in favour of the respondents/plaintiffs with proportionate costs throughout and interest at 6 % per annum from the date of the suit till realisation.
(2) The decretal amount shall be payable by monthly instalments of Rs. 500 (Five hundred only) payable on or before 10th of each month, the first instalment of the decretal amount shall fall due on 1-8-1967 (first August Nineteen Hundred and Sixty Seven).
(3) In case of default in payment of any instalment, the decree-holder shall have the right to file execution for the entire decretal amount which remains due.
(4) The surety shall not be discharged till the entire decretal amount is paid and cleared."
10. Since the judgment-debtor failed to pay the amount as per terms of the compromise an execution application was filed by the decree-holder praying for the attachment and sale of the immov-- able property of the surety. A writ of attachment was accordingly issued. Thereafter the surety filed an application under section 47, C. P. C. Read with Order XXI, rule 58, and section 151, C. P. C.
11. Objecting to the attachment on the ground that the decree which was passed in the suit was subsequently amended by a compromise filed during the appeal and, therefore, he was discharged from the surety bond which had been executed by him. Consequently he was not liable for the payment of the decretal amount on the basis of the bond which was executed by him, and so his property could not be attached towards the satisfaction of the decree. The learned Civil Judge dismissed the application and, therefore, first appeal was filed. Mr. R. B. Leghari, the learned Additional Sessions Judge, Karachi, reversed the order of the learned Civil Judge and held that by the compromise the surety was discharged. Against this order the present second appeal has been filed.
12. Taking up the other Appeal No. 399/69 the decree-holder Messrs Mina Trading Company filed a suit against Mumtaz Trading Company for the recovery of Rs. 9,312.50 on account of the refund of cash deposit and damages for breach of contract. Subsequently this suit was decreed for an amount of Rs. 7,437.50 with costs and running interest at 6 %. The cost was taxed at Rs. 858. Against this decree the judgment-debtor filed an appeal. During the pendency of that appeal an application under Order XXI, rule 5 was made for the stay of the execution. The stay was granted on furnishing security for the decretal amount. Tar Muhammad stood surety and executed the bond. It is not necessary to reproduce the surety bond as it is exactly the same as the bond executed by the previous surety except that the amount shown in this bond is Rs. 7,437.50. However, subse-- quently, the decree-holder and the judgment-debtor without the knowledge and consent of the surety compromised in the following terms and the decree was passed accordingly :- "That there shall be a decree for Rs. 7,437.50 in favour of respondents/plaintiffs with proportionate costs throughout and interest at 6 % per annum from the date of the suit till realisation.
13. The decretal amount shall be payable by monthly instalments of Rs. 500 payable on or before 10th of each month, the first instalment of the decretal amount shall fall due on 1-8-1967.
14. In case of default in payment of any instalment, the decree---holder shall have the right to file execution for the entire decretal amount which remains due.
15. The surety shall not be discharged till the entire decretal amount is paid and cleared."
16. Since the judgment-debtor did not pay the amount in terms of the compromise an execution application was filed for the attachment and sale of the immovable property of the surety. Usual notices were issued to the parties. The surety filed objections against the attachment and sale of the property on the ground that the decree which was passed in the suit was subsequently amended by compromise filed during the appeal and, therefore, he was discharged from the surety bond which had been executed by him. Consequently, he was not liable for the payment of the decretal amount on the basis of the bond which was executed by him. The objections were dismissed by the learned Civil Judge. First appeal was filed against this order. The learned Additional Sessions Judge (Mr. A. A. Dareshani) agreed with the learned Civil Judge that the compromise in the appeal did not discharge the surety and dismissed the appeal. Consequently the present second appeal- has been filed.
17. At the outset I would like to point out that it was conceded by the learned counsel for the decree- holder that since originally the decretal amount was payable in one sum and subsequently by compromise entered into by the decree-holder and the judgment---debtor, the payment was substituted by payment by instalments, it amounted to variation in the terms of the decree and also grant of time to the judgment-debtor to pay the decretal amount without the consent of the surety. It was further conceded by him that in case it was held that the provisions of the Contract Act were applicable to the bond executed by the sureties in pursuance of the order of the Court, as was done in the present case, the sureties would be discharged. In view of this concession the controvertial issued has been considerably narrowed.
18. After making this concession the learned counsel pointed out that according to the term `guarantee' as defined by section 126 of the Contract Act there should be three parties ; namely, principal debtor, creditor and surety who entered into the contract whereby the surety guarantees the performance of the obligation by the debtor. Continuing his arguments, he contended that in case of guarantee given to the Court, there was neither a creditor nor a principal debtor and, therefore, there was no contract of guarantee as defined by section 126 of the Contract Act and consequently, the provisions of sections 135 to 139 of the Contract Act had no application to the bond executed by surety under the provisions of Order XXI, rule 5 of the C. P. C. In order to support this contention, he sought in aid four authorities In re : Odayamangalath Appanni Nair v. Isaak Mackadam (AIR 1920 Mad. 355), Haji Ahmed Karim v. Maruti Ravji Bhongle (AIR 1931 Bom. 55), Jia Bai v. Johar Mull Bothra and others (AIR 1932 Cal. 858) and Madan Lal Motilal v. Radhakishan Laxmi Narain (AIR 1935 Nag. 258).
19. Dealing with the first authority AIR 1920 Mad. 355 a suit was instituted and in the course of the suit an application was made for the arrest of the defendant. He was arrested and subsequently released from custody on his furnishing security. Thereafter the plaintiff and defendant agreed to a consent decree. When the execution application was filed against the surety on the basis of the bond executed by him he objected to the maintainability of the execution proceedings on the ground that since the consent decree had been passed he was discharged under section 35 of the Contract Act. This contention was repelled and the surety was held to be liable for the amount on the basis of the bond executed by him. It was further held that the consent decree had not the effect of discharging his liability to the Court as the bond was executed under the Code of Civil Procedure. The liability of the surety was neither greater than nor different from that which he undertook, In the absence of a special stipulation in that behalf there was no ground for limiting the liability only to a decree passed after contest unless there had been collusion between the plaintiff and defendant in obtaining the decree. So far section 135 of the Contract Act was concerned it was ruled that it was not applicable. In this connection following observation was noted :- "Section 135, Contract Act, contemplates contractual obligations between the parties. Under the Code of Civil Procedure the bond is given to the Court and any infringement. Of the terms of the bond is a violation of the obligations to the --Court and therefore the agreement between the parties which resulted in a compromise decree has not the effect of discharg--ing his liability to the Court."
20. In this connection I would like to point out that in the subsequent decision of the same Court this principle was not followed as will be dealt with in due course.
21. The second authority AIR 1931 Bom. 55 is also to the same effect as the first one. On the basis of the bond it was held that a compromise as such was not explicitly and implicitly outside the terms of the surety bond executed in the case. It was also observed that it was a question of fact in each case whether the compromise was or was not executed under the terms of the surety bond.
22. In the third case (AIR 1932 Cal. 858) also the same point was involved. The surety guaranteed the payment by the defen--dant upto a certain limit that might be decreed against him. The suit was decreed on the basis of the admission of the defendant. Of the part of the claim and it was accepted by the plaintiff. The decree provided instalments. The execution of the decree was sought against the surety and to this exception was taken on the ground that the consent decree was not covered by the terms of the bond and, therefore, the surety was discharged. This con--tention was overruled and it was held that in the absence of fraud or collusion such a consent decree was as such within the bond as any other decree and the surety was liable to the extent of his bond.
23. These authorities proceeded on the principle that it depended upon the facts and circumstances of each case particularly the terms of the bond executed by the surety in each case and in. The absence of any stipulation to the contrary, the compromise effected without the consent of the surety did not discharge the surety from the obligation undertaken under the bond as when a surety undertook to be bound by any decree that may be passed, such a recital included a bona fide compromise entered into between the parties without fraud, providing the amount payable in one sum or by instalments as it was the ordinary incident of the trial of the suit that the decree might be passed on contest or by compromise or even on award; unless of course thereby the surety was not seriously prejudiced or when such a compromise was not contemplated by the surety when he executed the bond. Thus the main test laid down by the authorities is whether the terms of the bond expressly or impliedly excluded the liability of a surety in the event of a consent decree being passed.
24. The last authority AIR 1935 Rang. 258 supports the con--tention pressed into service by the learned counsel. In that case a suit was filed but it was dismissed by the trial Court. An appeal was filed in the High Court and it was allowed. The decree of the trial Court was set aside and in its place the decree was passed for a sum of Rs. 20,000 with running interest at 6 % with costs throughout. Against this decree the petitioner preferred an appeal to His Majesty in Council but the same was dismissed. During the pendency of the appeal to the Privy Council the execution proceedings were ordered to be stayed by the High Court subject to the furnishing of security, which was then furnished. Subsequently some arrangements were arrived at twice between the decree holder and the judgment-debtors. The question arose whether by these arrangements the position of the surety was affected and he was discharged from the liability under the bond. This was answered in the negative on the ground that the bond executed is pursuance of the order of the Court did not create any contractual obligation and it was unnecessary to determine whether the agreements materially altered the position of the surety. The head note embodying the rule reads as under : "The obligation which a surety incurs under the bond which he gives to the Court under the Code of Civil Procedure, is excluded from the definition of a "contract of guarantee" as contained in the Contract Act, and the provisions of sections 133 to 139 of the Act, cannot be made applicable to the bond given by a surety to the Court. The liability of the surety under such a bond may be determined by the Court if it has itself been respon3ible for a change in the situation which materially affects the terms of the surety bond. But if the Court in whose favour the surety bond is executed is not in the least responsible for any change in the situation of the surety, the surety is not entitled to ask the Court to relieve him of his obligation under the bond on the ground that the decree-holder has arrived at a certain arrangement with the principal debtor."
25. On the other hand it was maintained by the learned counsel for the sureties that when the sureties executed the bonds and undertook the obligation the decretal amount was payable at once in lump sum but the compromise varying the decrees by converting into instalments decrees materially altered the position of the sureties. It was also urged that the liability of the sureties was limited to the terms of the original decrees and it was never contemplated that the decrees would be subsequently varied as was done in this case nor the terms of the bonds permitted such a change in the decrees. Reliance was also placed upon the provisions of sections 135 to 139, Contract Act, which according to them were applicable to the bonds executed in pursuance of the order of the Court and in any case the principles laid down by those sections would be extended to such bonds.
26. In order to support these contentions 8 authorities were quoted. There are Re : National Coal Co.
27. Ltd. v. Kshitish Bose & Co, (AIR 1926 Cal. 818), Appul Ghafur v. Manna Lal Agarwala and others (AIR 1927 Cal. 239), Mohd. Yousif v. Ram Govindia Ojha (AIR 1928 Cal. 177), Narsingh Mahton and others v. Nirpatsingh and others (AIR 1932 Pat. 313), Annadana Jadaya Gooundar v. Konannal and another (AIR 1933 Mad. 309), Parvatibai Harivallabhdas Vani v. Vinayak Balvan Jangam and others (AIR 1939 Bom. 23), S. Venkataratnam v. Y Venkataratanam (AIR 1944 Mad. 394) and Pirihisingh v.
28. Ramcharan Aggrawal and another (AIR 1944 Lah. 428).
29. In the first authority AIR 1926 Cal. 818 the defendant was granted leave to defend the suit under Order XXXVII, C. P. C. On furnishing security which was then furnished. Later the suit was compromised and the decree was passed. It was held that the surety was discharged as the consent decree was passed without the knowledge and consent of the surety. Here it may be pointed out that this position was not approved in AIR 1932 Cal. 858 as already referred.
30. In the second authority AIR 1927 Cal. 239 the surety undertook to be liable in case the decree was passed and the decretal amount was not paid. Subsequently a consent decree was passed granting some period to the judgment-debtor for payment. It was held that as the decree that was passed was not capable of immediate execution the surety was no longer liable for the decretal amount under the terms of the bond.
31. The third authority AIR 1928 Cal. 177 is however, dis--tinguishable as in that case the surety agreed to pay the amount if the decree was passed on contest but it was passed on the basis of an award. It was, therefore, held that such an arrange--ment was not in contemplation with the bond so executed. So the surety was discharged.
32. In the fourth authority AIR 1932 Pat. 313 a term in the contract of suretyship was, "if the suit is decided against the defendant and a decree for mesne profits is passed in favour of the plaintiffs, the plaintiffs would realise the amount of decree of mesne profits from the property mentioned in this deed". This term was interpreted to mean that the mesne profits would be determined by the Court. It was, therefore, observed, that the surety was liable for such an amount as might be decreed but if the Court after inquiry might well find that notwithstanding the decree for possession and mesne profits, no profits were in the circumstances payable then the surety would not be liable in any sum. Now what happened in that case was that the suit for possession was decreed and inquiry with regard to the mesne profits was ordered but in order to save the costs of the inquiry the plaintiffs and defendants compromised their dispute as to mesne profits and agreed upon a fixed sum of Rs. 950. The liability of the surety under the bond was limited to Rs. 500.
33. It was held that the surety was discharged on account of the compromise and the grant of time to the judgment---debtor. It was added that the surety was thereby deprived of the possibility that he might be discharged from the liability on the basis of the findings of the Court. With regard to the application of sections 135 to 139, Contract Act it was observed as under: "Various points were discussed by the learned Judges as to the proper construction of sections 135 to 139, Contract Act, which concern the discharge of a surety but to my mind these matters are irrelevant when one considers the contract of suretyship itself in this case. Moreover, in any case it seems to me that the proper clause of the Contract Act which is applicable to this case is section 135 and that section is quite specific in its character and lays down that if a suit is compromised, that is to say, it a compromise is entered into between the principal debtor and the creditor or if time is given to the principal debtor then the surety is discharged and if that section is applied to this case the surety is most certainly discharged for not only has a compromise been entered into but time has by the compromise been given to the principal debtor."
34. In the above authority the principle laid down in the case of Rees v. Berington (1795 2 Ves Jr. 543) was followed and the observation which was made by Lord Soughbroough runs as under: "It is the clearest and most evident equity not to carry en any transaction without the privity of him who must necessarily have a concern in any transaction with the principal debtor. You cannot, keep him bound and transact his affairs (for they are as much his as your own) without consulting him."
35. The fifth authority AIR 1933 Mad. 309 deals with the case of consent decree allowing time for the payment of the sum agreed upon between the parties to the litigation without the consent of the surety. A decree for the possession of a Jagir was passed. Against this decree the defendant preferred an appeal but the decree-holder was allowed to execute the decree pending the appeal on furnishing security. A security bond was thereupon executed by four sureties including the surety who contested the execution proceedings. In appeal the defendant succeeded and got back the Jagir by way of restitution. The defendant also applied by way of restitution for payment of mesne profits, but without any inquiry by the Court the parties entered into private arrangement as to the claim to mesne profits without the consent of the contesting surety and the amount was fixed at Rs. 20,000 and it was agreed that Rs. 9,000 and odd standing to the credit of decree-holder in Court be received by the defen--dant and the balance Rs. 10,000 and odd are to be paid by the plaintiff within the period of 2 months and in default the execution proceedings should be taken against the immovable property which had been offered as security by the sureties. When the execution proceedings were filed three contentions were raised, two of those contentions were that the surety was discharged on account of the consent decree and further the decree gave time for payment of the amount. The first con--tention that the surety was discharged on account of the decree having been passed by consent was not accepted but with regard to the second contention of allowing time for the payment of the amount it was agreed that if the arrangement provided for postponed payment or for amount being paid by instalments the surety was discharged from his obligation. Support for this view was sought from the authorities reported in AIR 1927 Cal. 239 4 Taunton 454, AIR 1932 Cal. 858, 120 1 C 552 and (1894) 2 Ch. D 75. In this connection following observation was made : "The principle that a contract by a creditor to give time to the principal debtor discharges the surety is well recognised. The reason of the rule is this : 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 so given has elapsed."
36. Reliance was also placed upon the provisions of section 135 Contract Act and it was held that the principle underlying that section was applicable. In this connection following observation was made : "Mr. Sesha Ayyanger is right in contending that section 135, Contract Act, does not apply to this case. This is not a case to which the provisions of the Contract Act directly apply. But sections 133, 134 and 135, Contract Act, and some of the following sections embody equitable principles which have long been established in England, and I have no doubt that a surety cart claim the protection of these principles in such proceedings as those."
37. The sixth authority AIR 1939 Bom. 23 refers to the security bond executed by the sureties during the pendency of a suit against their principal debtor. A decree having been passed against the principal debtor, the decree-holder took out execution proceedings. The principal debtor went in appeal against the decree and execution against him was stayed on offering fresh securities for the decretal amount. The question was whether the old sureties were discharged by reason of the acceptance of the new sureties in appeal. It was held that the case was one in which the Court itself was responsible for substituting fresh sureties and although it was not for the old sureties to allege and prove that they were materially prejudiced yet in fact they were so prejudiced and hence the first sureties were discharged. In this authority after reproducing the provisions of sections 126, 133, 135 and 139, Contract Act, and after referring to the principles laid down by the decisions in AIR 1935 Nag. 258, AIR 1920 Born. 55, AIR 1930 Bom. 122, AIR 1932 Pat. 313 and AIR 1928 Cal. 177, following rule was laid down: "Having regard to the definitions of section 126, Contract Act, it is clear in my opinion that sections 133, 135 and 139 cannot apply in terms to a transaction of this kind, where the bond is given to the Court, and there is no `creditor' within the meaning of section 126. But though they do riot apply in terms and though the question whether a surety is discharged from the undertaking he had given to the Court depends on the construction of the surety bond it does not follow that the principles underlying these provisions should not be applied mutatis mutandis.
38. As has frequently been pointed out, the Contract Act is not exhaustive. The general principles underlying the law of suretyship (and in particular the principle that the rights of a surety are not to be interfered with of without his consent) may be applied and ought to be applied even though the pro--visions of the Contract Act do not govern the case."
39. It was further observed that since the Court itself was responsible for the change in the situation which materially affected the position of the former sureties under the terms of their surety bonds the case was also covered by the principles laid down in AIR 1935 Nag. 258, with the result that the sureties were discharged. To further support the view that the surety was not bound to prove that he had been actually prejudiced the following observation made in the case of Keshav Lal v. Partap Singh (AIR 1932 Bom. 168) was reproduced : "If there is substantial alteration in a contract by the princi--pal without the consent of the surety, even if there be no extra prejudice to the surety which can be shown to exist, the surety will be discharged, because the Court will not go into the question whether there has been any actual prejudice or not. The surety is to be the Judge whether he will continue to remain liable on the new contract or not."
40. The 7th authority (AIR 1944 Mad. 396) confirmed the view that the provisions of the Contract Act did not apply in terms but the principle could be extended to the security furnished in terms of the order of the Court. The relevant observation reads as under :- "As pointed out in AIR 1935 Nag. 259, when a security bond is given to the Court under the Civil Procedure Code there is no tripartite agreement between the surety, the principal debtor and the creditor, as in the ordinary contract of guarantee. The surety's contract is with the Court. In 56 Mad.
41. 625 (AIR 1933 Mad. 309) this Court held that the sections of the Contract Act did not apply but the principles underlying them did. This opinion is shared by the Bombay High Court ; See I L R 1938 Bom. 794 (AIR 1938 Bom. 23). We are bound by 56 Mad. 625 with which we respectfully agree, and therefore this appeal has to be decided, not on the provisions of the Contract Act, but .On the general principles which underlines its provisions. It is a fundamental rule of law that a surety is relieved from liability if the creditor compounds or gives time to the principal debtor without his consent "
42. The citations in the brackets are mine. In this authority the view the taken in (I L R 1938 Born. 794) (AIR 1931` Dom. 23) that the grant of time by Court affected the position of the surety, was not approved. In this connection the relevant observation reads as under : "We may add that our reference to I L R 1938 Born. 794 does not imply that we are in agreement with all that was said there. In one respect the judgment certainly goes, further than we are prepared to go. In that case certain execution proceedings had been adjourned from time to time by orders of the Court pending an appeal. The adjourn--ments extended over a period of six years.
43. The learned Judges considered that this amounted to giving time to the debtor, and the fact that the Court was itself responsible for this made no difference. An order which has the effect of giving time to the debtor may be passed by a Court in spite of strong opposition on the part of the creditor. In such circumstances is he to lose the benefit of the security? Surely the principles underlying the sections in the Contract Act do not go to this length. The giving of time by the Court is quite different matter from the giving of time by the Creditor. Of course, if the creditor is a consenting party as was the creditor in this case, the surety will be relieved of liability unless fie also consents."
44. The 8th authority (AIR 1944 Lah. 428) also follows the rule lard down by the preceding authority that the principles underlying sections 133 to 141 applied to the surety bond executed in favour of courts under the Civil Procedure Code although the sections were not themselves applicable. In drat case a suit was filed for Rs. 3386-13-0. An attachment before judgment was granted and the defendant was called upon to furnish security for a sum of Rs. 1,500. The security was furnished by the appellant in that case. Subsequently the suit was referred to arbitration but during those proceedings the suit was compromised before the arbitrators who gave the award in terms of tire compromise. The terms of the award were accepted by the parties and the decree was accordingly passed. By the terms of the award which formed a part of the decree, the plaintiff was to deliver three ornaments deposited with him by the defendant on receipt of a sum of Rs. 800 and the balance of the decretal amount was to be paid by instalment of Rs. 75 per mensem. It was also mentioned that the security furnished by the surety would remain in force until the whole decretal amount was paid off, although the surety was no party to the compromise or to the award. When subsequently the execution proceedings were taken against the surety for the recovery of the amount objection was taken by the surety contending that he was discharged on account of reference to the arbitration and time was granted to the defendant by granting instalments. The decisions reported in AIR 1922 Lah. 336, AIR 1935 Nag. 258. AIR 1932 Pat. 313. AIR 1928 Cal. 177 and AIR 1937 Lah. 34 were quoted to support the contention that the surety was not discharged but these authorities were found to be inapplicable on the ground that those were decided on the construction of the contracts entered into by sureties and did not bear on the point under consideration. On the other hand, the authorities reported in AIR 1930 Dom. 122, AIR 1939 Born.
23. AIR 1943 Bom. 246, AIR 1936 Mad. 576 and AIR 1934 All. 616 were found to be more in point supporting the proposition that the principles underlying sections 133 to 141, Contract Act applied to the bonds executed in favour of these Courts. On the basis of this principle the surety was held to have been discharged. The head notes embodying the principle laid down read as under : "The principles underlying sections 133 to 141 apply to surety bonds executed in favour of Courts under the Civil Procedure Code, although the sections are not themselves applicable. The surety bond in favour of the Court may not literally fall within the definition of a contract of guarantee but the existence of a contract is not sine qua non for the applica--tion of the principles of equity on which sections 133 to 141, Contract Act, were themselves based. Although a bond is given to a Court under section 145, Civil P. C., it is really for the benefit of the party for whose protection or in whose interest it is given and the Court can only enforce it either by execution or by assigning it in certain cases for the benefit of that party. It follows as a matter of course that that party has no right to act in a manner as tray be detrimental to surety, impair his rights to any extent without his consent or bold him liable for a contract which is different from one that he had stood a guarantee for. And if that party does so act. The surety must be held to be discharged. Consequently where in a suit by the creditor against the debtor the surety executes a bond in favour of the Court under Order XXXVIII, rule 5, Civil P. C. Any arrangement between the creditor and the principal debtor without the surety's knowledge and consent which has the effect of granting time for payment or impairs the surety's remedies against the principal debtor which he would have been entitled to pursue on discharging his obligations converts the contract between the creditor and debtor into a different one from what the surety had stood a guarantee for, would entitle the surety to be relieved of his engagement and operates as a discharge.
45. No doubt the equitable principles which the Indian Legislature wished to adopt in respect of tripartite agree--ments between a creditor, a debtor and a surety were embo--died in the Contract Act and to that extent the Contract Act may be regarded to be exhaustive; but the preamble of the Contract Act clearly shows that it was not intended to deal exhaustively with the whole branch of the law of con--tract but "to define and amend certain parts of" that law.
46. Contracts, for instance, which fall within the ambit of the Negotiable Instruments Act, the Transfer of Property Act, or the Companies Act, etc. Are not dealt with in the Contract Act."
47. The authority reported in AIR 1920 Mad. 355 was also quoted but it was pointed out that two of the subsequent Division Benches in Madras did not share the view expressed in this decision. It was further observed that this decision took a narrow view of the situation and virtually ignored the principles of equity. It was added that it also omitted to take notice of the fact that the surety bonds were enforcible at the instance of the creditors or the decree-holders for whose benefit they were given and could not be enforced by the Courts, even if they wished so to do, in the absence of requests or applications by creditors or decree-holders. One of the decisions referred to is AIR 1936 Mad. 576. The other seems to be AIR 1933 Mad. 309. There is also a third decision in AIR 1944 Mad. 394 as already dealt with.
48. Yet another decision of Madras High Court is the case of Thummalakunta Krishtappa v. Satrasala Adinarayanappa and another (AIR 1937 Mad. 584). In that case security was furnished during the pendency of the suit which was subsequently decreed. Execution application was filed. During execution proceedings the decree-holder and the judgment-debtor entered into a com--promise whereby instalments were granted. It was held that by giving time to the judgment-debtor to pay the decretal amount, the surety was discharged. Reliance was placed upon the rule laid down in an English authority re: case of Rose v. Bradford Banking Co. ((1894) 2 Ch. 32). However, it was observed that the general principle that an agreement by the decree-holder to give time to the judgment-debtor discharged the surety was subject to one exception and that is when the decree-holder gives a concession to the judgment-debtors but his right to proceed against the surety is specifically reserved. After stating this exception it was pointed out that it could not be denied that the order of the learned District Judge, "no execution unless appellant defaults" made it impossible to execute the decree even against the sureties.
49. In addition I may refer to seven authorities which I have been able to discover on further search.
50. These are : Harendra Kumar Ghosh and another v. Gurupada Bhow mich (AIR 1937 Cal. 452), Jatindra Narayan Deb v. Gauranga Chandra Dutta Banik and another (AIR 1957 Assam 71), Cakkunny v. Viswa natha Iyer (AIR 1961 Kar. 312), Kanailal Mookerjee v. Kali Mohan Chatterjee (AIR 1957 Cal. 645), Ishar Singh v. Ram Saran Dass and another (AIR 1958 Pb. 337), Raja Pertabgeerjee v.
51. Rasheed Shaivpporjee Chenai and another (AIR 1958 Andh. Pra. 512) and Bankim Bihari Roy v.
52. Halima Bai and another (AIR 1962 Orissa 54).
53. In AIR 1937 Cal. 452, attachment before judgment was issued against immovable property but it was stayed on undertaking by the defendant that he would not sell the property. Later a security bond was executed to the extent of Rs. 8,000, and the attachment was revoked. Subsequently the suit was compromised for the entire amount under claim with costs providing that the decree would be made final by treating it fully satisfied in case amounts of Rs. 5,000 and Rs. 2,000 were paid by particular dates and in default the entire balance of the decretal amount would be realized. Nothing was paid. So on the first occasion Rs. 2,000 were recovered in execution proceeding. When another execution application was filed, the surety raised the objection that since a decree was passed on compromise, he was discharged. To support this contention following observations made in case of Partap Singh Mohalbhai v. Kshvlal Harilal (AIR 1935 P C 21) was sought in aid: "The principle is that the surety, like any other contracting party, cannot be held bound to something for which he has not contracted. If the original parties have expressly agreed to vary the terms of the original contract no further question arises. The original contract has gone, and unless the surety has assented to the new terms, there is nothing to which he can be bound, for the final obligation of the principal debtor will be something different from the obli--gation which the surety guaranteed. Presumably he is discharged forthwith on the contract being altered without his consent, for the parties have made it impossible for the guaranteed performance to take place."
54. To refute the contention, the learned Judges reproduced the following observation from the same authority: "It is perhaps desirable that the application of this principle must always depend upon a correct analysis of the contract in fact made. Guarantees frequently relate to obligations without special reference to any specific contract between the creditor and the principal debtor. In such a case the doctrine referred to would have a very limited operation."
55. The contention raised by the surety was repelled on the construction of the bond which did not involve the limitations which were urged. It was observed that the words used in the bond were "if any decree is passed" and the word "any" was wide enough to include instalment decree. It was further observed that the provisions of section 135, Contract Act were of no assistance to the surety as the terms of the compro--mise were not at variance with the terms of the bond. I would like to point out that in this case no other authority was considered. This case has also no application as the surety bond was executed before the decree was passed while in the case before me the bond was executed in appeal against the decree and appeal was disposed of in terms of the compromise.
56. To the same effect is the authority reported in AIR 1957 Assam 71. Property was attached before judgment and was released on furnishing security. Later the suit was com--promised whereby the decretal amount was made payable by four instalments. Some amount was recovered and for the balance execution proceedings were drawn against the surety who objected to the execution of the decree on the ground that a consent decree with instalments was passed without his consent.
57. This contention was repelled. In this connection it would be useful to reproduce the following head note: "There is nothing to limit in the meaning of the term `decree' as used in O. XXXVIII, r. 5, Civil P. C. It may relate to a decree passed on adjudication by Court or on consent or compromise between the parties, provided the decree in question is neither collusive nor fraudulent nor obtained with a view to prejudice the interests of the surety. Even if the surety is not a contesting party to the decree it would as well affect him provided under the terms of the bond itself the liability of the surety is not limited in any manner. The matter eventually rests upon construction of the surety bond. Further, a decree continues to be a decree for payment of money though it is payable in instalments and there is no reason why a decree though a consent decree and payable in instalments, should not be equally binding on the surety unless he had succeeded in showing otherwise that the liability under the surety bond had been extinguished."
58. While reaching this conclusion the learned Judges placed reliance upon the authority reported in AIR 1932 Cal. 858 which had followed the authority reported in AIR 1931 Born.
55. The authority reported in AIR 1937 Mad. 584 was also quoted but this was not approved in view of the earlier decision of the same High Court reported in AIR 1920 Mad. 355. The authority reported in AIR 1932 Pat. 313 which had laid down that the surety was discharged, was distinguished on the ground that the liability of the surety was extended to a maximum sum of Rs. 500 only whereas the compromise decree was passed for Rs. 950.
59. Similarly, in AIR 1951 Ker. 312 certain movable belonging to the defendant were attached before judgment and then the surety bond was executed, for the removal of the attachment.
60. Subsequently the suit was compromised and a decree was passed in terms of the compromise. It was held that on the terms of the bond the compromise decree was not excluded therefrom and the surety was not discharged. Some case-law was reviewed and the principle laid down in AIR 1935 Nag. 258 was followed. It was held that section 135, Contract Act could not be applied.
61. However, the authorities reported in AIR 1944 Lah. 428, AIR 1944 Mad. 396 and AIR 1939 Bom. 23 were not referred.
62. Taking up AIR 1957 Cal. 645, a suit was filed for the recovery of Rs.3,100 and attachment was issued under O.XXXVIII. Rule 5, C. P. C. Subsequently the attachment was raised on furnishing security for an amount of Rs. 3,535-13-0. Later, a consent decree was passed providing that in case Rs. 2,400 were paid by a particular date, the decree would be deemed to have been satisfied otherwise the decree-holder shall be entitled to recover the entire decretal amount by execution. The sum of Rs.
63. 2,400 not having been paid an execution application was filed for recovery of the decretal amount from the surety. An objection was filed by the surety that he was discharged, firstly on account of consent decree and secondly time was granted to the judgment-debtor. The first ground was rejected as it was held that the terms of the surety bond did not bar the passing of a decree by consent. In this reliance was placed on AIR 1932 Cal. 858. So far the second ground is concerned it prevailed and it was held that the surety was discharged by virtue of the provisions of section 135, Contract Act. The decision reported in AIR 1944 Lah. 428 already referred to was followed and the rule laid down by that decision that the principle underlying sections 133 to 141, Contract Act applied to the bonds in favour of Courts, although the sections were not by themselves applicable, was approved. The authority reported in AIR 1935 Nag. 258 was also quoted, but the learned Judge did not agree with the view expressed therein.
64. In AIR 1958 Pb. 337 and AIR 1958 Andh. Pra. 512 the facts are not similar to the facts in the present case but relying upon AIR 1939 Bom. 23, AIR 1944 Lah. 428 and AIR 1944 Mad. 396 the principle underlying sections 133 to 139, Contract Act was applied.
65. In AIR 1962 Orissa 55 attachment before judgment was issued. The security was furnished for an amount of Rs. 2,000 and the attachment was raised. Subsequently the suit was compro--mised without notice to the surety and the decretal amount was payable after one year. Default was committed and execution proceedings were instituted against the surety. Objec--tions were filed by the surety and one of the grounds pleaded was that he was discharged as time for the payment of the decretal amount was granted. This objection was upheld. The learned Judges on the review of the entire case-law, for and against, maintained the view that the principle underlying section 135 of the Contract Act applied to the cases of security bonds though the section in terms did not apply. It was also observed that equitable principles were applicable.
66. On consideration of the various authorities, it is clear that there is divergence of view on the question whether a consent decree specially which carries the load of instalments, releases the surety from the obligation undertaken under a bond but it is generally settled that it depends upon the facts and circumstances of each case and particularly on the terms of the bond. There is, however, force in the view that a mere passing of consent decree does not absolve the surety because when the surety undertakes to be bound by any decree that may be passed, such a recital includes a bone fide compromise which is entered into by the parties without any fraud but in cases where there is an express recital in the surety bond or one by necessary implication by which liability is restricted only to a decree on contest, the surety would stand discharged if a compromise decree is passed. It is also obvious that where the compromise is effected without the consent of the surety by which he is seriously prejudiced and when such a compromise was not contemplated by the surety at the time he executed the bond, the consent decree would certainly discharge the surety and absolve him of his liability.
67. It was also laid down that in case the contract was varied, it was immaterial whether the variation was substantial o material, or not, because the contract ceased to be one which the surety had undertaken to fulfil. The principle to be remembered is that guarantee will only extend to the liability precisely answering the description contained in the guarantee. A variation of liability undertaken or a departure in the terms of the bond resulting from act or omission of the creditor will operate to discharge the surety from his obligation under the bond.
68. As regards the applicability of the provisions of the Contract Act, the idea underlying is that where the creditor does some--thing behind the back of the surety, and does it to his prejudice by advancing facilities to the principal debtor, which are likely to harm the surety, he is no more to be bound by his under--taking. It is believed to be a consensus of opinion that sections 133 to 141 of the Contract Act do not in terms apply to the surety bond executed in favour of a Court but the principle contained in these sections continue to apply as the existence of a Contract is not sine qua non for the application of the principles of equity on which these sections are themselves based. The contrary view has been expressed in a few autho--rities. Madras view taken in AIR 1920 Mad. 355, neither prevailed earlier nor it was approved in the later decisions. Moreover it was a simple consent decree without instalments and, therefore, the question relating to the grant of time for payment of the decretal amount did not come under consideration. On that account also this authority has no application to the present case. The view expressed in AIR 1935 Nag. 258 was based on that Madras view which no longer holds the field. Nagpur view was also dissented from in several authorities. Furthermore the question of instalments was not involved and the arrangements reached in that case have no relevancy to the facts of the present case. The other authority reported in AIR 1951 Ker. 312 upholding that view followed Nagpur authority, and other authorities which dealt with the question of consent decrees without providing instalments or granting time. However, in AIR 1932 Cal. 858 it was observed that a consent decree providing postponed payment or payment by instalment did not discharge the surety. To this I may say with respect that since the question of instalment was not involved it was unnecessary to consider it and any observation made in that behalf be treated as obiter. The following further observations made therein explains the principle which was followed in deciding the case: "The doctrine that where a person is a surety for the obligation of another person under a contract any variation in the contract will discharge the surety is plain enough. In the same way if the creditor gives times to the principal debtor that is a material which may affect the surety and the surety's obligation may be discharged in such a case as that. We tire dealing here with a person who has given security for whatever may be recoverable under a decree to be passed in the future by the Court."
69. The view excluding the application of the aforesaid sections of the Contract Act or the underlying principle is based on the ground that one of the essential elements present in every transaction of guarantee is the presence of three different parties as collaborating in the execution of the deed of guarantee and one of the parties is the principal creditor whereas in the case of bond executed in favour of the Court there is no principal creditor. In my humble opinion, this pre-supposes that the creditor has no say or interest in the matter. The bond by the Court is taken for the benefit of the creditor to ensure the recovery of the amount as by stay immediate recovery is suspended. The Court derives no advantage out of it. It is thus for the creditor to preserve the benefits available under the bond by refraining from doing anything which may have the effect of impairing the obligation undertaken by the surety. He, therefore, cannot avail of the bond if the guaranteed performance is altered in any manner. In some cases the grant of instalments has been considered to be an instance of a facility of the nature not warranted by the terms of the bond.
70. Broadly speaking, the various authorities may be described as falling in two categories. One category is of those cases in which securities were furnished before the decrees were passed while the other category is of those cases in which securities were furnished after the passing of the decrees.
71. The present case falls within the latter category. Confining myself to it, I feel no hesitation in saying, in view of the various authoritative pronouncements, that the principle underlying section 135, Contract Act can be safely applied to the present case. The decretal amount was payable at once in one sum but by compromise instalments were granted, thereby, the payment of the decretal amount was delayed. In this connection it may be recalled that in most of the authorities it had been ruled that by allowing instalments, it caused prejudice to the surety inas--much as it prevented him from paying off the decree-holder and then enforcing the original rights of the decree-holder against the judgment-debtor. It was further ruled that the principle of granting time without the consent of the surety having the effect of discharging him was subject to one condition namely, that though the time is granted, nevertheless, under the agreement the creditor's right to proceed at once against the surety is reserved.
72. In the present case, of course, it was provided that the surety shall not be discharged till the entire decretal amount was paid and cleared. Evidently this right was dependent upon the failure of the judgment-debtors to honour their commitments. So in view of the terms of the compromise the decree-holder could not immediately proceed against the sureties. It, therefore, follows that the rights of the sureties to proceed against the judgment debtors by paying off the decree-holder, was impaired.
73. Similarly the observations made in AIR 1935 P C 21 and (1759) 2 Ver Jr. 640 may be recalled and have important bearing on the issue involved in the present case. Repeating the observa--tions in the last authority it runs, "It is clearest and most evident equity not to carry on transaction without the privity of him who must necessarily have a concern in any transaction with the principal debtor.
74. You cannot keep him bound and transact his affairs (for they are as much his as your own) without consulting him".
75. As regards the terms of the bonds, it is not necessary to analyse them in view of the concession made by the learned counsel for the decree-holders as set out in the beginning. However, I may briefly allude to them. These are simple bond guaranteeing to pay the amount shown therein in case of default of the judgment-debtors. There is nothing in the terms of the bonds to suggest that the sureties agreed to fulfil the obligations incurred under them even if the amount was agreed to be paid by instalments or time was granted in any other manner. It is also not possible to assume that it was either contemplated or anticipated that there would be compromise granting instalments. In some cases, however, it was held that the omission to prove a precise clause to the contrary, did not preclude the passing of consent decree conditioned on instalments and, therefore, the commitment made by the surety remained unaffected. But those were the cases in which sureties had executed the bonds before the decrees had been passed.
76. It was next urged by the learned counsel for the sureties that the bonds which were executed were not in terms of the orders passed by the Court inasmuch as the securities ought to have been for the due performance of the decree and not for a specific sum and, therefore, the bonds were void.
77. According to the learned counsel the order of the Court should be read in terms of Order XLI, rule 5, C. P. C. In this connection reliance was placed upon sub-rule 3(c), "that security has been given by the applicant for due performance of such decree or order as may ultimately, be binding upon him." I am unable to uphold the contention that this provision of law had been violated. It is not a case of the bond having been executed before judgment in which case the decretal amount is till to be determined. Even in that case a security can be furnished for a fixed sum and, there--fore, the surety limits his liability. In the present cases the securities had been furnished in appeals against the decrees which were passed for fixed sums. Consequently there was nothing wrong if the amounts were specified in the bonds. Moreover, the sureties had executed the bonds undertaking the fulfilment of the obligations for fixed sums and took no exception at that stage.
78. They are now estopped from pleading that the bonds executed by thorn were not in terms of the orders of the Court or the pro--visions of O. XLI, rule 5(2) (c), C. P. C. The objection is, therefore, overruled.
79. In the result, I hold that the sureties are discharged from the liability undertaken under the bonds executed by them. It, therefore, follows that Appeal No. 42/1970 is dismissed while Appeal No. 39/1969 is allowed and the orders passed by the lower Courts are set aside. The decree holder shall bear the costs throughout.
80. K. B. A.