Indian Contract Act, 1872 — Ss. 43, 44 & 128 — Joint promisors and sureties — Distinction — Applicability of S.44
Sections 43 and 44 of the Indian Contract Act, 1872, operate only in relation to joint promises falling under Chapter IV of the Act. The principle that release of one joint promisor does not discharge the others is confined to contracts where all promisors stand on equal footing with respect to performance of the promise. The said principle cannot be extended to contracts of guarantee governed by Chapter VIII of the Act. A surety does not stand in the position of a joint promisor; his liability is secondary and dependent upon the subsistence of the liability of the principal debtor. Application of Sections 43 and 44 to sureties, without maintaining this statutory distinction, is legally impermissible.
(Paras 26–27, 33–37, 41–44)
Guarantee — Co-extensive liability — Limits
Though Section 128 declares that the liability of the surety is co-extensive with that of the principal debtor, such co-extensiveness operates subject to the provisions governing discharge of surety. Where the principal debtor is discharged by acts or omissions of the creditor, or where the creditor enters into arrangements amounting to composition, giving time, or agreeing not to sue, the surety stands discharged under Section 135.
(Paras 33–37, 41–44)
Execution — Sureties — Selective execution — Limits
While a creditor may choose to proceed against the surety or the principal debtor, such choice does not obliterate the statutory protections available to the surety. Presence of the principal debtor in execution proceedings becomes necessary to examine whether circumstances attracting discharge under Chapter VIII have arisen. In the absence of a contract to the contrary, co-sureties are governed by Sections 146 and 147 and cannot be fastened with the entire liability selectively.
(Paras 41–44)
CASE DETAILS
M. Venkataramanaiah v. M/s. Margadarsi Chit Fund Limited and Others
Civil Revision Petition No. 5357 of 2007
Decision dated: 15-11-2008
Court: High Court of Telangana
pasted
ANALYSIS OF FACTS
The 2nd respondent was a prized subscriber in a chit conducted by the 1st respondent. The petitioner and respondents 3 to 7 stood as sureties for payment of instalments.
On default by the principal debtor, the 1st respondent obtained a money decree against all defendants.
In execution, the decree-holder selectively proceeded against only three judgment-debtors (all sureties), including the petitioner, seeking arrest under Order XXI Rule 37 C.P.C., without effectively proceeding against the principal debtor or other sureties.
The executing Court ordered arrest of the petitioner alone, holding that he possessed sufficient means.
The petitioner challenged the order contending that:
Sureties are not joint promisors;
Liability cannot be imposed selectively and wholly on one surety;
Acts of the creditor subsequent to the decree had the effect of discharging the sureties.
STATUTORY FRAMEWORK CONSIDERED
Chapter IV — Performance of Contracts (Ss. 37–45): Joint promisors (Ss. 43 & 44)
Chapter VIII — Indemnity and Guarantee (Ss. 126–147): Suretyship
Section 128 — Co-extensive liability of surety
Sections 133–135 — Discharge of surety
Sections 146–147 — Contribution among co-sureties
RATIO DECIDENDI
1. Joint Promisors v. Sureties — Foundational Distinction (Paras 26–27, 33–37)
The Court held that:
Joint promisors are bound equally and primarily to perform the contract.
Suretyship is fundamentally different: the principal debtor bears the primary obligation, and the surety’s obligation is secondary and conditional.
Therefore:
Sections 43 and 44, which govern joint promisors, cannot be bodily lifted and applied to contracts of guarantee.
2. Inapplicability of Section 44 to Sureties (Paras 33–37, 41–44)
Section 44 states that release of one joint promisor does not discharge others.
In contrast, under Chapter VIII:
Discharge of the principal debtor, or arrangements such as composition or giving time, automatically discharge the surety.
The Court held that applying Section 44 to sureties destroys the statutory safeguards expressly enacted for them.
3. Effect of Creditor’s Conduct Post-Decree (Paras 41–44)
The decree-holder accepted instalments from the principal debtor after decree and collected compound interest.
Such conduct amounted to an arrangement giving time or composition, attracting Section 135, thereby discharging the sureties.
Failure to effectively proceed against the principal debtor, particularly when insolvency was pleaded, attracted adverse consequences against the creditor.
4. Co-sureties — No Selective Burden (Paras 41–44)
Even assuming execution was otherwise permissible, Sections 146 and 147 mandate equal contribution among co-sureties.
There was no legal basis to saddle the entire decretal liability on the petitioner alone.
5. Procedural Illegality in Execution
The executing Court failed to follow mandatory safeguards under Order XXI C.P.C. before directing arrest.
On this ground also, the order was unsustainable.
FINAL HOLDING
The Civil Revision Petition was allowed.
The order directing arrest of the petitioner was set aside.
No order as to costs.
DOCTRINAL SIGNIFICANCE
This decision qualifies and limits the broad observations made in earlier cases such as M.G. Brothers Finance Ltd. v. J. Badarinath by restoring the statutory boundary between joint promises (Chapter IV) and guarantees (Chapter VIII). It authoritatively holds that Sections 43 and 44 cannot be applied to sureties, and that selective execution against a surety must always be tested against the discharge provisions and contribution principles embedded in the law of guarantee.
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