Gosri Commercial Chits (P) Ltd. v. M.C Thomas, C. Purushothaman and Joy Jaison M.J.

# IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE P.SOMARAJAN FRIDAY, THE 16TH DAY OF FEBRUARY 2018 / 27TH MAGHA, 1939 CRP.No. 546 of 2015 (B) AGAINST THE JUDGMENT IN OS 794/2011 of II ADDL.M.C., ERNAKULAM, DATED 28-07-2012 AGAINST THE JUDGMENT IN AS 186/2012 of VI ADDL.DISTRICT COURT, ERNAKULAM DATED 05-06-2015 REVISION PETITIONER/APPELLANT/PLAINTIFF : - ------------------------------------------------------------------------ GOSRI COMMERCIAL CHITS (P) LTD., A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT PROVIDENCE ROAD, COCHIN-18, AND BRANCH AT FARIDABAD AND AT OTHER PLACES, REPRESENTED BY CHAIRMAN JOSE THOMAS, S/O.M.P.THOMAS, RESIDING AT MANAVALAN HOUSE, COCHIN-18. BY ADVS.SRI.JIMMY JOHN VELLANIKARAN SRI.V.L.THOMAS SRI.ANISH ANTONY ## RESPONDENTS/RESPONDENTS/DEFENDANTS :- ------------------------------------------------------------------- 1. M.C THOMAS, AGED ABOUT 62 YEARS, S/O.FRANCIS CHEEKUTTY, MOOZHITHOTTIL HOUSE, 60/81, KATTAKKARA ROAD, S.KALOOR, COCHIN-682 017 (DIED). 2. C.PURUSHOTHAMAN, AGED ABOUT 56 YEARS, S/O.V.CHANDUKUTTY, “KESAVA BAHVAN”, S.R.K NAGAR, OTTAPPALAM, PALAKKADU, NOW RESDIDING AT N.G.O.QUARTERS, TYPE No.3, H.No.6/34, THRIKKAKKARA, KCOHI-682 025. 3. JOY JAISON M.J., S/O.JOHN T. MANAYIL, AGED ABOUT 58 YEARS, GOLDEN STREET, VADUTHALA, KOCHI-682 023. R3 BY ADV. SRI.NELSON J.MANAYIL R3 BY ADV. SRI.P.M.RAJAGOPAL THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 16-02-2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: DMR/- **C.R.** ## **P. SOMARAJAN, J.** --------------------------------------- ## **C.R.P. No.546 of 2015** ---------------------------------------- Dated this the 16[th] day of February, 2018 ## ORDER The original plaintiff/appellant in A.S.No.186/12 came up with this revision challenging the decree and judgment dated 05.06.2015 of the First Appellate Court (VIth Additional District Court), Ernakulam, in A.S.No.186/12 and the decree and judgment dated 28.07.2012 in O.S.No.794/2011 of the 2[nd] Additional Munsiff's Court, Ernakulam. The suit was filed for recovery of money due under a chitty transaction. The first defendant was the principal debtor and the second and third defendants were the guarantors. During the pendency of the suit, the first defendant passed away. His legal heirs were not impleaded in the suit. Ultimately the lower court has dismissed the suit on the reason that due to non impleadment of legal heirs of deceased first defendant, the suit would stand as abated as against all defendants including the second and third defendants. It was challenged before the First Appellate Court in A.S.No.186/12 wherein the view taken by the lower C.R.P. No.546 of 2015 2 court was accepted by dismissing the appeal. Aggrieved by the said judgment and decree, the plaintiff came up with this revision. 2. Heard the learned counsel appearing for the revision petitioner and the learned counsel for the respondents. 3. The legal question mooted in the revision is with respect to (1) whether the discharge of principal debtor by the act of creditor or by the act of others or by operation of law would _ipso facto_ relieve the guarantor from his liability and what would be the legal impact of non impleadment of legal heirs of principal debtor in a suit for recovery of money as against the guarantors. (2) Is there any change in the legal position when there is no legal heirs or estate left behind by the deceased principal debtor. 4. Going by the provisions contained in the Contract Act, the legal position is very much settled that the liability is co-extensive with the principal debtor as well as the guarantor and failure to satisfy the decree or discharge the liability by the principal debtor will not _ipso facto_ terminate the liability of C.R.P. No.546 of 2015 3 the guarantor. Even the creditor can proceed against either the principal debtor or the guarantor. But, when there is non impleadment of legal heirs of principal debtor in a suit for recovery of money, it may have its own legal impact. The decisions rendered by the Apex Court in **T. Gnanavel v. T.S. Kanagaraj and another [2009 KHC 4426]** and **State Bank of India v. Messrs. Index port registered and others [AIR 1992 Supreme Court 1740]** and the High Court of Andhra Pradesh in **Syndicate Bank v. Pamidi Somaiah [2002 KHC 941]** were brought to the notice of this Court. The legal positions are different when dealing with the question of discharge of surety effected by the mutual consent of creditor and the principal debtor and the discharge of principal debtor by operation of law. There is a cardinal difference between the action taken by the creditor discharging the principal debtor and discharge of the principal debtor by other means either by operation of law or otherwise. 5. The liability of the surety is governed by Sections 128 and 132 to 139 of the Contract Act, unless otherwise provided C.R.P. No.546 of 2015 4 - by the terms of contract. The discharge of the principal debtor by operation of law does not discharge the surety. A suit may also be maintained against the surety for the full amount of - debt where the principal debtor has been adjudged insolvent or gone into liquidation under the Companies Act, 1956. (Ram = Kripal Singh V. State of U.P. [AIR 2007 SC (Supp) 1153)] (2007) 11 SCC 22). The effect of release or discharge of principal debtor is dealt with under Sections 132 to 139 of the Contract Act. Sections 134 and 139 are relevant in the instant case, which are extracted below for reference: _“_ _**S.134 : Discharge of surety by release or discharge of principal-debtor** - 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._ _**S.139 : Discharge of surety by creditor's act or omission impairing surety's eventual remedy.** - If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the_ C.R.P. No.546 of 2015 5 _eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.”_ 6. The expressions “by any contract between the - ” “ creditor and the principal debtor and by any act or omission of the creditor” in Section 134 and the expressions “does any act” and “omits to do any act” in Section 139 of the Contract Act should be understood as the act of the creditor. The act or omission contemplated by this Section may be those referred to in Sections 39, 53, 54, 55, 63 and 67 of the Contract Act. If - the principal debtor is discharged from his obligation by reason of any act or omission specified in those Sections, the liability of the surety will determine. A contract entered into - between the creditor and the principal debtor discharging or releasing his liability would discharge the surety. Any act or omission of the creditor, having the legal consequences of - discharging the principal debtor would also discharge the liability of surety. It is not at all necessary that there must be - an express discharge of the principal debtor by the creditor. - An implied release of principal debtor by the act or omission of C.R.P. No.546 of 2015 6 creditor would also discharge the surety. A mere inability to - trace out the whereabouts of the principal debtor for bringing - a suit against him or adjudging the principal debtor insolvent - or liquidation of principal debtor under the Companies Act, 1956, will not discharge the sureties from the liability as there is neither express nor implied release or discharge of the - principal debtor by the act or omission of creditor. When there - is no legal heirs to the deceased principal debtor, there would not arise any occasion for impleading the legal heirs. But, - when there is legal heirs to the deceased principal debtor, their non impleadment would amount to discharging the - principal debtor or the persons claiming under him including the legal heirs/legal representatives representing the estate, if any, left out by him and the failure or omission on the part of the creditor in impleading the legal heirs or the person - representing the estate left out by the principal debtor would discharge the surety. In the former one, the liability against the surety would survive irrespective of the death of the - principal debtor due to non availability of legal heirs/legal C.R.P. No.546 of 2015 7 - representatives of the deceased principal debtor. But, in the latter case, the liability against the surety would stand as discharged due to non impleadment of legal heirs of deceased - principal debtor. Then another question would arise what - would be the legal position when the principal debtor left out assets, either movable or immovable properties, without any legal heirs. In the absence of any legal heirs/legal representatives, the court has to proceed with the matter under Rule 4A and Rule 5 of Order XXII CPC. Rule 4A permits the Court, on the application of any party to the suit, by its - order appoint the Administrator General or an Officer of the Court or such other person, as it thinks fit, to represent the estate of the deceased for the purpose of the suit and the judgment or order given in the suit would bind on the estate of the deceased. 7. Order XXII Rule 4(4) CPC enables the Court to exercise its jurisdiction to pronounce judgment irrespective of the death of one of the defendants or the sole defendant, as the case may be, on satisfying any of the two conditions (1) C.R.P. No.546 of 2015 8 that such defendant has failed to file a written statement (2) that such defendant who filed the written statement has failed to appear and contest the suit at the hearing. But, it can be exercised when there is compelling reason because of the reason that the same is not controlled by Sub Rule (3) of Rule 4 of Order XXII. Order XXII Rule 4(3) is the normal procedure to be adopted. Rule 4(4) was incorporated by CPC (Amendment) Act 104 of 1976 with effect from 01.02.1977 which gives a discretion to the Court to pronounce judgment without substituting the legal representatives of any defendant on satisfying that the said defendant has failed to file a written statement or who, having filed it, has failed to appear and contest the suit at the hearing. The discretion under Order XXII Rule 4(4) is an exception to Sub Rule 3 of Rule 4 and - Rule 6 of Order XXII. But, the liability of the principal debtor and the guarantor are governed by Sections 128 and 132 to 139 of the Contract Act. 8. In **Syndicate Bank v. Pamidi Somaiah and another [AIR 2002 AP 12]** the High Court of Andhra C.R.P. No.546 of 2015 9 Pradesh took the very same view, but on another reasoning, based on the application of Section 140 of the Contract Act, that omission of creditor to bring the legal representatives of the principal-debtor on record and consequent abatement of the suit against the principal-debtor would discharge the surety as the surety's right to proceed against the principaldebtor as provided under Section 140 of the Contract Act is no longer available with the surety. Paragraph 15 of the judgment is extracted below for reference: _“15. In the present case also though the principal debtor did not claim the relief under the Act 7 of 1977, but due to his death the suit had abated and the debt against him stands discharged. When once the debt stands discharged against the principal debtor, more so, as a result of an omission on the part of the creditor, I do not find that there is any case for the creditor to proceed against the surety. The liability of the surety is always to make good the loss that was caused as a result of the default of the principal debtor and if the surety discharges the liability of the creditor he can have a right to proceed against the principal debtor. In the present case as a result of the omission of the creditor, the surety is denied of such a right. In such a case, it would not be proper to hold that the_ C.R.P. No.546 of 2015 10 _surety is still liable for the creditor even after the discharge of the principal debtor, as a result of the omission on the part of the creditor.”_ 9. The above said reasoning made by the High Court of Andra Pradesh is really against the settled principle and the decision rendered by a Three Judge Bench of the Apex Court in **State Bank of India v. Messrs. Index port Registered and others [AIR 1992 SC 1740]** . The liability of the surety - - is co extensive with that of the principal debtor unless it is otherwise provided by the contract. Even the death of - principal debtor and non availability of any estate as that of him will not absolve the surety from his liability. Section 140 of the Contract Act has to be understood as an enabling provision to the surety to compensate the loss sustained by him in discharging the liability with the creditor. It has nothing - to do with the co extensive liability embedded in Section 128 of the Contract Act. 10. In **T. Gnanavel v. T.S. Kanagaraj and Another [2009 KHC 4426]** the question came up before the Apex Court is whether it is permissible to exercise the jurisdiction C.R.P. No.546 of 2015 11 under Order XXII Rule 4(4) CPC after the pronouncement of the judgment and it was held that it is not permissible. It was a suit for specific performance in which the defendant had filed a written statement denying the material allegation made in the plaint, but finally had failed to appear and contest the suit. During the pendency of the suit, the defendant passed away. But it was not brought on record by the plaintiff. Ultimately an _ex parte_ decree was passed for specific performance of the contract. When it was objected by the legal heirs of the deceased defendant, the plaintiff applied under Order XXII Rule 4(4) for exempting from bringing the legal heirs or legal representatives of the defendant. The trial court allowed this application which was taken up in revision before the High Court and the High Court set aside the _ex parte_ decree being a nullity and held that there cannot be exercise of jurisdiction under Rule 4(4) of Order XXII after the passing of the judgment and it was confirmed by the Apex Court. The relevant portions of paragraphs 13, 14 and 16 are extracted below for reference: C.R.P. No.546 of 2015 12 _“13. As noted herein earlier, a plain reading of Order XXII Rule 4(4) of the CPC would clearly show that the Court is empowered to exempt a plaintiff from the necessity of substituting the heirs and legal representatives of any such defendant who has failed to file a written statement or who, having filed it, had failed to appear and contest the suit at the time of hearing of the same, but such an exemption can only be granted before the judgment is pronounced and in that case only, it can be taken against the said defendant notwithstanding the death of such defendant and such a decree shall have the same force and effect as it was pronounced before the death had taken place.............In any view of the matter, Order XXII Rule 4(4) of the CPC clearly says that such exemption to bring on record the heirs and legal representatives of the deceased could be taken or granted by the court only before the judgment is pronounced and not after it......_ _14...............That being the position, we are, therefore, of the view that since in this case, admittedly, exemption was obtained after the judgment was pronounced, the provision of Order XXII Rule 4(4) of the CPC would not be attracted._ _…............._ _16. This view has also been expressed by Madras High Court in a decision reported in Elisa and others v. A. Doss, AIR 1992 Mad. 159, in which the Madras High_ C.R.P. No.546 of 2015 13 ## _Court in paragraph 3 had observed as follows:-_ _“It is seen from the rules that an application to bring the legal representatives on record shall be made within the time limited by law and if no application is made within the said period, the suit shall abate as against the deceased defendant. That is the effect of sub-r.3. Sub-r.(4) provides an exception to sub-r.(3). Under sub-r.(4), it is open to the court to pass an order exempting the plaintiff from the necessity of bringing on record the legal representatives of any defendant, who had failed to file a written statement or having filed the written statement, failed to appear and contest the suit at the hearing. But, the language of sub-r.(4) is clear enough to show that the court must pass an order exempting the plaintiff from the necessity of substituting the legal representatives.”_ 11. What is dealt with under Order XXII Rules 1 to 3 CPC is the abatement of suit on the death of sole defendant or one of the defendants or the death of sole plaintiff or one of the plaintiffs and failure on the part of party to bring the legal heirs in the party array of the suit. It has nothing to do with the liability existing as against the other defendants or the right of existing plaintiff to proceed with the suit if the right to sue survives. The decision drawn by a Three Judge Bench of C.R.P. No.546 of 2015 14 the Apex Court in **State Bank of India v. Messrs. Index port Registered and others [AIR 1992 SC 1740]** , relied on by both the Trial Court and the First Appellate Court, is really standing on a different footing as the question mooted therein was whether it is permissible to execute a decree as against the guarantor overlooking the availability of mortgaged property. The Apex Court, by overruling the legal position laid down in **Union Bank of India v. Manku Narayana [AIR 1987 SC 1078]** , it was held thus: _“Where the money decree was against all the defendants including the guarantor and a mortgage decree against one of the defendants who had mortgaged the shop with the plaintiff bank, so far as the said shop was concerned and the decree did not put any fetter on the right of the decree holder to execute it against any party whether as a money decree or as a mortgage decree, the decree holder would be entitled to proceed against the guarantor first for the execution of the decree. Moreover, it is the right of the decree holder to proceed with it in a way he likes. Section 128 of the Indian Contract Act itself provides that “the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract”. If on principle a_ C.R.P. No.546 of 2015 15 _guarantor could be sued without even suing the principal debtor there is no reason, even if the decretal amount is covered by the mortgaged decree, to force the decree-holder to proceed against the mortgaged property first and then to proceed against the guarantor.”_ 12. It was submitted by the learned counsel for the plaintiff that the principal debtor left out no property at the time of his death and no legal heirs were available as on the date of his death and the same was brought to the notice of the trial court at the time of giving oral evidence. 13. On the other hand, the learned counsel for the third defendant contended that there are legal heirs as far as the principal debtor, first defendant, is concerned and omission on the part of the plaintiff to implead the legal heirs of the first defendant would decide the fate of guarantors also. From the facts and disputes involved in the case, I am of the view that the court has to ascertain whether there is any legal heirs alive and any property let out at the time of death of first defendant, then only the issue can be safely answered. For that purpose, the decree and judgment of First Appellate Court C.R.P. No.546 of 2015 16 as well as the Trial Court are hereby set aside. The parties shall appear before the Trial Court on 12.03.2018. The lower court shall dispose of the matter within a period of three months from the date of receipt of a copy of this order. Revision petition is disposed of accordingly. No order as to costs. ## **P. SOMARAJAN, JUDGE** DMR/-