1. ' 7 and 8. These two applications have been filed on behalf of defendant No,1 under section 5 of the Limitation Act and under Order 37, Rule 2, C.P.C. At the time of hearing, it is stated by the learned counsel, who had earlier filed Vakalatnama on behalf of defendant No,1, that such Defendant had expired. Learned counsel for the plaintiff states that subject to filing of death certificate confirming that defendant No,1 had expired, he would seek deletion of defendant No,1 from the proceedings.
2. The learned counsel for defendant No,1, however, made a statement in specific terms that defendant No,1 had expired and therefore his Vakalatnama to such extent had extinguished. These applications, in the circumstances, are dismissed.
3. ' The remaining applications listed at Serial Nos.1 to 6 are filed under Order 37, Rule 2, C.P.C. On behalf of defendants Nos.2 to 6 and 9 to 13. Mr. Balal A. Khawaja appearing for defendants Nos.2 to 4 and 9 to 12 has urged that his clients have been sued as guarantors on the basis of letters of guarantee executed by them on different dates. However, on 21-3-1987 the management of defendant No,13 was changed and his clients ceased to have any interest in the management of the said pro forma defendant. Such position was duly acknowledged by the plaintiff and finds mention in paragrpah 17 of the plaint wherein it is averred that the new management confirmed the loan of Rs,2.2 million and promised to pay debt on demand with interest at the rate of 14% with quarterly rests. After some repayments were made by defendant No,13, the project of defendant No,13 stopped functioning in or about the year 1993. Resultantly, the PICIC being the main lender and the ICP led consortium including the plaintiff agreed to a package deal for the relief of pro forma defendant No,13 by sale of its project for Rs,24.742 million out of which the consortium got Rs,13.5 million wherefrom the plaintiff's share came to Rs,8.356 million. The matter was considered by the Executive Committee of the plaintiff who recommended approval of the settlement and the matter was consequently placed before the Board of Directors of the plaintiff who resolved as follows:-- "Resolved that keeping in view the decision of the ICP-led Consortium to dispose of the project against payment of Rs,24.742 million out of which the share of Habib Bank Limited comes to Rs,8,356,500.00 and the recommendation of the Executive Committee the payment of Rs,8,356,500.00 be and is hereby accepted as full and final settlement of liabilities against M/s. Shafaq Lamps Corporation Limited, thereby writing off a sum of Rs,32.588 million and waiving interest of Rs,27.386 million.
4. ' Further resolved that legal action/filing of suit against ex-directors of the company as guarantors may be and is hereby initiated immediately on the basis of their personal guarantees."
5. ' The present suit was filed on 24-12-1995 for recovery of a sum of Rs,69,957, 104.00 from defendants Nos.l to 12 jointly as well as severally. In support of the applications for leave to defend Mr. Balal A.
6. Khawaja, on the basis of the above facts, has urged that the effect of acceptance of payment by the plaintiff in full and final settlement of the liabilities against the pro forma defendant No,13 and the decision to write off a sum of Rs,32.588 million coupled with waiver of interest of Rs,27.386 million would result in discharge of the guarantees executed by the different directors. In support of his above submission, the learned counsel has relied on the case of John Kuruvilla and another v.
7. Parameswa ran Pillai reported in AIR 1980 Kerala 87 and Citibank N.A., New Delhi v. Juggilal Kamlapat Jute Mills Co. Ltd., Kanpur reported in AIR 1982 Delhi 487. In the first case, the surety had executed bond in favour of the Court whereunder some movable property was offered as security for the amount that might be found due to the plaintiff. Subsequently, the plaintiff and the defendant compromised the matter which had adverse effect on the rights of the surety who was not party to the compromise. By reference to the provisions of sections 135 and 137 of the Contract Act, it was held that the operation of section 135 does not appear to depend entirely on the terms of the surety contract or on substantial departure therefrom and a consequent serious prejudice to the surety. On the basis of peculiar facts involved in the matter, it was found that the compromise reached between the parties could not be within the contemplation of the surety who was not bound under the surety bond for execution of the compromise decree. In the second case, it was held that the mortgagee after enforcement of the right of sale did not lose or part with the right in respect of the security. However, a surety was held entitled to release/discharge upon paying the guaranteed amount. The learned counsel has urged that the plaintiff having discharged its debt to the principal debtor, the guarantee stands determined. In support, the learned counsel has referred to the Law of Banking by Ian F.G. Baxter (IVth Edition), page 130, Paget's Law of Banking (Xth Edition), page 613, Tannan's Banking Law and Practice in India (XVIIIth Edition - Reprint 1996), page
447. It is further urged that by virtue of section 134 of Contract Act, a surety is discharged; (a) by any contract between the guarantor and the principal debtor by which the principal debtor is released; or (b) by any act or omission of the guarantor, legal consequence of which is the discharge of the debtor. Reliance has also been placed on the Banking Law in Theory and Practice by S.N. Gupta for the above submission with particular reference to the following passage at page 1057:-- "a surety may be discharged, when the creditor must have either--
(a) made a composition with the principal debtor, or
(b) promised to give time to the principal debtor, or
(c) promised not to sue the principal debtor, by virtue of a contract made between the creditor and the principal debtor, and the surety must not have assented to such contract."
8. ' The learned counsel has further referred to para.4 of the letters of guarantee which being material is reproduced hereunder:- "(4) This guarantee shall not be discharged or prejudiced by any partial payments or settlement of accounts or the existence of a credit balance of the Principal at any time or by discharge of the Principal by operation of law or for any other reason."
9. ' By reference to the above term of the guarantee, it is urged by Mr. Balal A. Khawaja that if the discharge is attributable to the plaintiff bank, the liability of the guarantor comes to an end and stands extinguished. Mr. Mustafa Lakhani appearing for defendant No,6 and Mr. M. Saleem Thepdawala appearing for defendant No,5 while adopting the arguments of Mr. Balal A. Khawaja have raised further plea that their respective clients had severed their relationship with defendant No,13 who had applied for substitution of guarantees. Indeed, it is further the case of defendants Nos.5 and 6 that substituted guarantees were furnished and the same had been accepted by the plaintiff bank. On the basis of such substitution it is urged that the liability of the said defendants Nos.5 and 6 under the personal guarantee had come to an end and cannot be enforced by the plaintiff.
10. ' In reply, Mr. A.I. Chundrigar appearing for the plaintiff bank has urged that defendants Nos.1 to 12 had specifically agreed to their liabilit'y being that of principal debtor and to be held as primarily responsible for the liabilities of the principal. The learned counsel has relied with great emphasis upon clause (4) contained in letters of guarantee which is quoted hereinabove and has urged that the guarantees in question were agreed to be treated as continuing-securities. As to the resolution dated 30th April, 1995 passed by the Board of Directors of the plaintiff bank, it is urged that the settlement of liabilities was accepted only as against the pro forma defendant No,13 and the second part of the resolution had made it very clear that the liability under the personal guarantees of the defendants would be enforced immediately. It is further urged that the present proceedings were initiated strictly in accordance with the above-referred resolution passed by the Board of Directors of the plaintiff. The learned counsel submits that by virtue of clause (4) contained in the personal guarantee executed by the defendants, notwithstanding the composition between the plaintiff and pro forma defendant No,13, the guarantees could validly be enforced. In such context, it is further urged that the provisions of section 135 of the Contract Act admit of assent by the surety, in advance of the composition, and to continue liability in terms of the guarantee/surety notwithstanding settlement/compromise between the plaintiff-creditor and the pro forma defendant No,13 the principal debtor. The learned counsel in support of his above submission has referred to the cases of A.R. Krishnaswami Ayyar and another v. Travancore National Bank Limited (AIR 1940 Madras 437), Ram Ranjan Rakshit v. The Chief Administrator Rehabilitation Finance Administration, New Delhi and others (AIR 1960 Calcutta 416). As to the proposition that omission to sue principal debtor in time would not discharge surety, the learned counsel has referred to Mahanth Singh v. U Ba Yi (AIR 1939 Privy Council 110).
11. ' The principle laid down in the three judgments cited by the learned counsel for the plaintiff has not been disputed by the learned counsel appearing for the defendants and even the judgment in Citi Bank N.A., New Delhi (supra) cited by Mr. Balal A. Khawaja, follows the dictum laid down in the case of A.R. Krishnaswa mi Ayyar and another (supra) and it is held that the rights conferred on the surety under sections 133, 135 or 141 of the Contract Act could be waived by specific agreement in the deed of guarantee and that such an agreement would amount to consent within the meaning of those sections. It is, however, urged that all the three cases were simple cases of composition and the present case was distinguishable for the reason that the Board of Directors of the plaintiff besides accepting payment of Rs,83,56,500.00 as full and final settlement of liabilities standing against the pro forma defendant No,13 has further decided to write off the sum of Rs,32.588 million and waiver of interest of Rs,27.386 million. It is urged that the effect of the writing off and waiver was total extinction of the claim and the liability of defendants Nos.1 to 12 was completely discharged.
12. The principle laid down in the judgments and the various passages cited by the learned counsel from the different treatises referred hereinabove is contained in Chapter VIII of the Contract Act more specifically in sections 134, 135 and 137 thereof which for the sake of brevity may be reproduced hereunder:- "134. The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
135. 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.
137. Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety."
13. The provisions of section 134 lay down the elementary and general principle that a surety is discharged in case principal debtor is released by the guarantor. Section 135 relates to a case where compromise is made between the creditor and the principal debtor whereby it is agreed to give time to, or not to sue the principal debtor. The effect of such compromise, if reached without the assent of the surety, is that it discharges the latter. Considering the scope and the applicability of the two sections namely section 134 and section 135 of the Contract Act, it appears that the scope of section 134 is much wider than that of section 135. The discharge of surety covered by section 134 is not circumscribed by asset or otherwise and the release follows as a legal consequence in the event of any act or omission of the creditor which causes discharge of the principal debtor. The latter section applies to the situation where compromise is extended by the creditor to give time to the principal debtor or in a case where the former agrees not to sue the principal debtor. The agreement, as above, adversely affects the rights of the surety and, therefore, in the absence of asset, the surety is entitled to claim discharge. In the cases covered by section 135 of the Contract Act, which appears to be an exception to the general rule contained in the preceding section, the term like the one contained in abvoe-quoted clause 4 of the letters of guarantees may rightly be urged as assent by the surety in advance. However, in the present case, tentatively speaking, something more than mere extension of time or the undertaking of not suing is evident from the language of resolution passed on 30th April, 1995. The words writing off and waiver have a definite meaning. According to the Dictionary of Banking by F.E. Perry (Second Edition) the words write off and waiver are stated to mean as follows:- "Write off: To remove entirely from the asset book values, as with a bad debt which it has proved impossible to recover; to cancel; to dismiss from consideration.
14. ' Waiver: A forgoing, a renunciation. The term is applied to bills of exchange to signify the case where the holder of a bill at or after its maturity absolutely and unconditionally renounces his rights against the acceptor."
15. ' Taking the ordinary dictionary meaning of the two terms, it appears that besides accepting payment of Rs,83,56,500 as full and final settlement of liabilities against the pro forma defendant No,13, the sum of Rs,32.588 million was written off and the interest in the sum of Rs,27.386 million was decided to be waived. The decision to initiate legal action/filing of suit for enforcement of personal guarantees against former directors of the pro forma defendant No,13 was apparently beyond reason and/or comprehension. However, such matter and the true intention of the resolution has to be determined by reference to evidence as may be produced by the parties. For the purpose of grant of leave to defend, a party is required to make out a plausible case which, in the present case, in my view, has sufficiently, been established. Needless to add that the observations contained in this order are of tentative nature and the matter has finally to be decided on the basis of evidence and record as may be forthcoming. In the circumstances, defendants Nos.2 to 6 and 9 to 12 have succeeded in making out a case for grant of unconditional leave to defend which is hereby granted. The said defendants may file their written-statements within two weeks from today and supply copies thereof in advance to the learned counsel for the plaintiff. The applications listed at Serial Nos.1 to 6 are allowed. The costs shall abide the final judgment and decree.