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Haji Ahmed Karim v. Maruti Ramji Bhongle
Factual and Procedural Background
The defendant No. 2 appellant became surety for defendant No. 1, the judgment-debtor, to the plaintiff-respondent, the decree-holder. The plaintiff and defendant No. 1 compromised the suit. Subsequently, the decree-holder sought to enforce the decree against the surety, who resisted enforcement on the ground that the decree was not obtained after contest and, therefore, he was released from liability. The trial Court upheld the surety’s plea and released him, but the lower appellate Court rejected this plea. The surety then appealed to the present Court.
Legal Issues Presented
- Whether a compromise of the suit, rather than a contested decree, releases the surety from liability under the terms of the surety-bond.
- Whether the terms of the surety-bond implicitly or explicitly exclude compromises and require a contest in Court to enforce the bond.
- Whether there was collusion between the decree-holder and the judgment-debtor that would affect the surety’s liability.
- Whether the surety is discharged if the judgment-debtor’s written statement alleging part payment is not substantiated in the compromise.
Arguments of the Parties
Appellant's Arguments
- The surety-bond’s terms, specifically the reference to decrees or orders passed by the Kopargaon Court, appellate Court, or High Court, implicitly exclude compromises and postulate a contested decree.
- The judgment-debtor had alleged a payment of Rs. 1,400 in his written statement which was not proved in the compromise, creating a variation in the terms of the surety-bond that entitles the surety to be discharged.
- Reliance was placed on precedents such as National Coal Co. v. Kshitish Boss & Co. and Muhammad Yusaf v. Ram Gobinda Ojha to support the argument that the surety should be discharged.
Respondent's Arguments
- The terms of the surety-bond do not exclude compromises; the surety’s liability remains notwithstanding a compromise.
- The appellant failed to prove collusion despite alleging it and did not testify in court.
- The surety’s conduct, such as removing crops subject to an interim injunction, undermines his claim to be discharged.
- Relied on decisions like Shivapa bin Gurlingapa v. Nagappa bin Shivapa Kudrimoti and Appunni Nair v. Isack Mackadan to support the position that the surety remains liable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| National Coal Co. v. Kshitish Boss & Co. | Surety liability when bond is entered on the basis of a good defence and liability limited to court-awarded amount. | Distinguished as a single Judge decision based on English law; not authority that compromise without surety’s consent releases surety. |
| Muhammad Yusaf v. Ram Gobinda Ojha | Surety discharged where parties altered the forum from court to arbitration without surety’s consent. | Distinguished on facts; in the present case, no such alteration or variation of bond terms occurred. |
| Shivapa bin Gurlingapa v. Nagappa bin Shivapa Kudrimoti | Surety remains liable despite compromise if bona fide and bond does not require surety’s consent. | Adopted reasoning to hold surety liable under the present bond and facts. |
| Appunni Nair v. Isack Mackadan | Same principle as Shivapa case regarding surety liability on compromise. | Followed to support the view that surety is liable despite compromise. |
Court's Reasoning and Analysis
The Court first examined whether the terms of the surety-bond excluded compromises. It reasoned that the mention of the Kopargaon Court, appellate Court, and High Court was a precautionary phrase (“pro majore cautela”) rather than an explicit requirement for contest, and did not imply that compromises were excluded. The Court found no reliable evidence that compromises were implicitly excluded from the bond’s operation.
The Court then considered the allegation of part payment by the judgment-debtor, which was unsubstantiated by receipts or documentary evidence, and noted that the surety did not testify to relying on such an assurance. Thus, no variation in the bond terms was established to discharge the surety.
Regarding the allegation of collusion between the decree-holder and judgment-debtor, the Court found no evidence to support it, as both the trial and appellate Courts had rejected the claim.
The Court emphasized that the surety cannot resist enforcement of a bona fide compromise under a bond that does not require the surety’s consent for such a compromise. It distinguished the appellant’s cited precedents, clarifying that they do not support the proposition that a compromise without the surety’s knowledge releases the surety.
Accordingly, the Court held that the surety remains liable under the terms of the bond and the facts of the case.
Holding and Implications
The appeal is dismissed with costs and the decree is confirmed.
The direct effect of this decision is that the surety is held liable despite the compromise between the decree-holder and the judgment-debtor. The Court did not set any new precedent but reaffirmed existing principles that a surety’s liability is not discharged by a bona fide compromise unless the bond explicitly excludes such compromises or requires the surety’s consent.
Madgavkar, J.:—
The defendant No. 2 appellant became surety for defendant No. 1 judgment-debtor, to the plaintiff-respondent decree-holder. The plaintiff and defendant No. 1 compromised the suit, the decree-holder sought to enforce the decree against the surety, who resisted on the ground that the decree was not obtained after contest, and he was, therefore, released. The trial Court upheld the plea, the lower appellate Court rejected it, the surety appeals.
It is argued for the appellant that the terms of the surety-bond particularly the words that the surety “will fulfil the terms of the decree or order that may be passed in the said suit by the Kopargaon Court or by the appellate Court or by the High Court and binding against the said defendant,” implicitly, if not explicitly, exclude a compromise and postulate a contest. Further, the judgment-debtor in his written statement had set up a payment of Rs. 1,400, which he did not seek to prove in the compromise. There is, therefore, a variation in the terms of the surety-bond, which, whether prejudicial or not, would entitle the surety to be discharged.
For the respondent decree-holder it is contended that the bond including these terms did not exclude a compromise. The appellant failed to go into the witness-box, or prove collusion, which he had set up, and on the contrary, according to the respondent, had taken away crops, which were the subject of an interim injunction, and the surety is not, therefore, discharged.
For the appellant reliance is placed on decisions such as National Coal Co. v. Kshitish Boss & Co. and Muhammad Yusaf v. Ram Gobinda Ojha. The respondents rely on decisions such as Shivapa bin Gurlingapa v. Nagappa bin Shivapa Kudrimoti and Appunni Nair v. Isack Mackadan.
The first question in these cases, in our opinion, is whether a compromise as such is or is not excluded under the terms of the surety-bond. That must be a question of fact in each case. In the present case, we are unable to accept the argument for the appellant that the mention of the three Courts in the surety-bond necessarily implies a contest in the Courts and excludes a compromise. It would be impossible to argue, for instance, that the mention of these three Courts necessarily placed the judgment-debtor under an obligation to carry the matter right up to this Court, and to incur the costs that they involve merely by reason of such mention. The Courts are mentioned pro majore cautela instead of the simple phrase, “the ultimate decree of the Court.” In terms, therefore, a compromise is not excluded. There is no reliable evidence on the record to show that it was implicitly excluded. There was, it is true, in the written statement the allegation of part satisfaction, but no receipt or documentary evidence was produced, accounts were gone into before the compromise and the appellant has never gone into the witness-box and stated that the judgment-debtor assured him that he would be able to substantiate such payments, or that it was in reliance upon such an assurance that he entered into such a bond.
It follows on this view that a compromise as such is not explicitly or implicitly outside the terms of the surety-bond in this case.
The collusion alleged is not supported by the evidence, the trial Court does not find it proved, the lower appellate Court found it not proved. For the purpose of this appeal, therefore, we must hold that no collusion is established.
On these facts the law is, in our opinion, clear that the surety cannot resist enforcement of the bond on a compromise on the face of it bona fide. The bond itself does not stipulate that even such a compromise should not be entered into without his knowledge and consent. We adopt the reasoning and almost the language of this Court in Shivapa bin Gurlingapa v. Nagapa bin Shivapa Kudrimoti and hold that the surety is liable. The same view has been adopted by the Madras High Court in Appunni Nair v. Isack Mackadan. The decision in National Coal Co. v. Kshitish Bose & Co., is the decision of a single Judge, based on the English case of Tatum v. Evans. A reference to that case shows that the learned Judges expressly held that the surety had been induced to enter into the bond on an allegation that there was a very good defence to the suit and had expressly made himself, liable, only for such an amount “as the Court might think fit to award.” That case, therefore, is no authority for the proposition that a compromise without the knowledge and consent of the surety necessarily releases the surety of his liability. We may distinguish the case of Muhammad Yusaf v. Ram Gobinda Ojha(5) on the ground that the parties contemplated the Court as the forum to settle the amount of the liability to the defendant and the latter without the consent of the surety altered it by appealing to arbitration, thus varying the form of the bond and releasing the surety.
For these reasons we are of opinion that on the terms of the present bond and the facts of the present case the surety is liable.
The appeal fails and is dismissed with costs.
Decree confirmed.
B.G.R
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