1. This is a plaintiff's application in revision against the judgment of the Small Cause Court in Suit No. 197 of 1936 decided on 22nd October 1936. The mate, rial facts are that on 3rd August 1932 the defendant had guaranteed to pay Rs. 400 out of a loan of Rs. 1100 borrowed by one Rajmal from the plaintiff. The defendant paid Rs. 220 and left the balance of Rs. 180 outstanding. Rajmal applied to the Debt Conciliation Board for settlement of his debts. Before the Board, the plaintiff excluded from his statement of debts this debt of Rs. 400 declaring that he would recover it from the surety (defendant). The plaintiff filed the suit out of which this revision application arises to recover Rs. 219-13-9 including interest and cost of notice. The lower Court in an able judgment held that the defendant's right as a surety to have recourse to his remedy against the principal debtor was impaired by the plaintiff's act of withholding the debt in suit from the statement of his debts submitted to the Debt Conciliation Board and that the legal consequence under Section 15(3) of the Debt Conciliation Act, was that the defendant was discharged from liability in view of Section 134 of the Contract Act. The lower Court's judgment is contested here on the grounds that in the first instance the liability of the surety is co-extensive with that of the principal debtor, that the plaintiff had before the Debt Conciliation Board expressly reserved his remedy against the Board, and that nothing provided in the Debt Conciliation Act can be construed to impair the plaintiff's right to recover the debt from the surety. Reliance is placed on 28 NLR 325,1 AIR 1933 Nag 287,2 16 Pat 27,3 38 MLJ 1314 and 56 Mad 625.5.
2. I find no difficulty in assenting to the first two grounds but the third one requires serious consideration.
3. It may be easily conceded that an express release of the principal debtor coupled with a reservation of the creditor's right to proceed against the surety does not discharge the principal debtor. In such a case the debt is not destroyed and the remedy of the surety against the principal debtor is not impaired. The position of the surety is two-fold: on the one hand he is liable to pay the debt, on the other hand, when he pays the debt, he stands in the shoes of the creditor and he is entitled to enforce against the principal debtor all the remedies which were available to the creditor. If the liability of the surety is so coextensive with that of the principal debtor, his right is not less co-extensive with that of the creditor after he satisfies his debt. To enable the surety to enforce his right against the principal debtor, there are two essential conditions: (i) that the debt itself must subsist, (ii) that his remedy against the principal must remain unimpaired. Consequently the creditor will be entitled to compel the surety to perform his promise only if the debt subsists and the surety's remedy is unimpaired. It is at this stage that we have to turn to the relevant provisions of the C.P Debt Conciliation Act. S. 8(2) of that Act runs as follows:
Every debt of which a statement is not submitted to the Board in compliance with the provisions of sub-s. (1) shall be deemed for all purposes and all occasions to have been duly discharged.
4. The material portion of sub-s. (1) is this:
If…. it is in the opinion of the Board desirable to attempt to effect a settlement between him and his creditors, a notice shall be issued and served or published in the manner prescribed, calling upon every creditor of the debtor to submit a statement of debts owed to such creditor by the debtor.
5. Section 15(3) runs as follows:
Where, after the registration of an agreement under sub-s. (2) of S. 12, any unsecured creditor sues for the recovery of a debt, other than a debt incurred subsequent to such agreement, in respect of which a certificate has been granted under sub-s. (1) or any creditor sues for the recovery of a debt incurred after the date of such registration, any decree passed in such suit shall, notwithstanding anything contained in the Code of Civil Procedure 1908 (5 of 1908), not be executed until all amounts recorded as payable under such agreement have been paid or such agreement ceased to subsist.
6. In view of Section 8(2) of the Debt Conciliation Act, is it open to the creditor to contend that the debt still subsists? It is argued for the plaintiff that the Debt Conciliation Act itself has no application. The learned counsel for the plaintiff says: I have two debtors, the principal debtor and the surety. I choose to forgo my claim against the former but how does it affect my right to recover my debt from the surety? That is indeed a valid and effective argument in there had been two independent debts. Is that the case here? Manifestly not because the liability of the surety, though distinct, postulates the existence of the liability of the principal debtor. As pointed out in 49 Mad 1566 at pp. 172, 185, a contract of suretyship requires the concurrence of three persons, viz. the principal debtor, the creditor and the surety. To express in terms of Section 126 of the Contract Act, the surety enters into a contract of guarantee to perform the promise or discharge the liability of a third person in case of his default. The surety undertakes his obligation at the request, express or implied, of the principal debtor. It is because the surety pays the principal debtor's debt that he is entitled to enforce the debt against the principal debtor after he discharges it. When the creditor seeks to enforce the debt against the surety, the latter is legitimately entitled to ask: “Is the principal debtor himself liable to you? If not, he has committed no default and you cannot compel me to discharge an obligation which has no existence. If, on the other hand, I pay you, how can I recover it from the principal debtor whose liability the debt itself having vanished, has ceased.” When the surety seeks his remedy against the principal debtor, he does it in respect of the same debt as the one owed by the principal debtor to the creditor. It is clear that the debt must exist although the creditor may choose to enforce his remedy against the surety only to the exclusion of the principal debtor. Therefore the real issue is whether the debt due by the principal debtor exists at all to entitle him to enforce his remedy against the surety, and that issue must be determined in the light of Section 8(2) of the Debt Conciliation Act. It says that every debt of which a statement is not submitted to the Board in compliance with the provisions of sub-s. (1) shall be deemed “for all purposes and all occasions” to have been discharged. It is true that is the present case the plaintiff as creditor declared this debt in his statement but that, declaration was not made for settlement of the debt but to intimate that it should not be settled. A creditor cannot say to the Board “I have this debt to recover but I do not wish it to be settled” and maintain nevertheless that the debt subsists in the face of S. 8(2) of the Act. The words “for all purposes and all occasions” cannot be overlooked and they, confronting the creditor, make it impossible for him to say that the debt exists for the purpose of its being enforced against the surety.
7. The case of a surety of an insolvent who has obtained an order of discharge is no doubt similar but it does not render any assistance here. The surety's liability in that case is not discharged because of special provisions of Section 44(3) of the Provincial Insolvency Act. That enactment cannot guide the interpretation of the Debt Conciliation Act. Although the object of both these enactments is to relieve debtors, they differ fundamentally in this, that while the Provincial Insolvency Act does not interfere with the contract, the Debt Conciliation Act does. The special authority, viz. the Debt Conciliation Board has been created to scrutinize the contracts of debtors and effect equitable settlement of the debts irrespective of the terms of the contracts. The settlement will be of no effect unless all the debts owed by a debtor are covered by it. It is therefore essential that every debt due by the debtor should be brought to the notice of the Board. The Insolvency Act exempts the debtor from personal liability and restricts the creditor's remedy to his property whereas the Debt Conciliation Act protects both the person and the property of the debtor from the attacks of the creditor and cripples him by demolishing his fortifications of contract, although this result is attained by his concurrence induced by indirect compulsion.
8. From the foregoing discussion it follows that the original debt cannot be regarded as subsisting. Granting for the nonce that it subsists, it cannot be overlooked that under Section 15(3) of the Debt Conciliation Act, the surety's remedy is very substantially impaired. The plaintiff, by lifting the burden of the debt off the shoulders of the principal debtor and laying it on those of the surety, seeks virtually to shift his own disability entailed by the Debt Conciliation Act on to the surety in an aggravated form. The result is that the application is dismissed with costs. Pleader's fee Rs. 15.
D.S/R.K
9. Application dismissed.
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