# Sham Karlik Si11gll v. Mathura

- **Citation:** [1963] 3 S.C.R. 921
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** P. B. G.A.Jendr.A.Gadkar, K. a. D.A.s GUPTA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sham-karlik-si11gll-v-mathura-2693
- **Pages:** 9

## Headnote

Surety Bond-Executed in favour of Court-Compromise
decree in the Jiroceeding, if effects a discharge-Equitable rule_lndian Contract Act, 1872 (9 of 1872), ss. 135, 126.
Although s. 135 of the Indian Contract Act does not in
terms apply to a surety bond executed in favour of the court,
there can be no doubt that the equitable rule underlying that
section must apply to it. The reason for the said rule which
entitles the surety to a discharge is that he must be able at
any time either to require the creditor to call upon the principal debtor to pay off his debt, or himself to pay the debt and
seek his remedy against the principal de~tor.
·
The question as to whether the liability of the surety is
discharged by a compromise in the judicial proceeding in
which the surety bond is. executed must depend on' the term,
of the bond
~tsc:l'.. If the ter~s indicate ~hat the surety
undertook the habihty on the basis. that the dispute should be
1962
Sham Karlik Si11gll
v.
Mathura
Raghubar Day'l.I J.
1962
Septemb1(4.
I Raja Bahed•ir
qhaaraj (,,irji
'
"·
·: RajaP.
f'arthasarathy
Rayanimcaru
•
922
SUPREME COURT REPORTS
[1963]
decided on the merits by the court and not amicably settled,
the compromise will effect a discharge of the_ surety.
The Offici&l Liquiclators,
The Travanwre National &
·
Quifon Bank Ltd.
v, . The OfficialAssignu of.MadrM I. L. R.
. 1944: Mad. 708, Parvatibai v. Vinayak Balvant, I. L. R. 1938
Born. 794. Mahomtdalli lbrahimji v. Laxmibai, (1929) I. L. R.
LIV B()m. 118, Nar~ngh Maliton \1.
Nirpat Singh, (1932) ·
·I. L. R. XI Patna p90 and Muhammad Yusafv. Ram Gobinda
Ojha, ( 1927) I; L. R. L V Cal. 91, referred to.
.
·
But if the term~ show that the parties and the surety
contemplated that there might be an amicable settlement as.
well, and the surety executed the bond knowin_g that he might
be liable under the compromise decree,
ther~ can be no
discharge and the surety will be lia~Ie under the compromise
decree.
Hdji Ahmed v. Maruti Ram.ii, (1930) I. L. R. LV Born ..
97. AppunnJ Nair v. /sack Maclcadan, (1919) I. L. R. 43 Mad.
272 and Kannilal M oolcerjee v. Kali Mohan Chatterjee; A. I. R.
1957 Cal. 645, referred to.
·
consequently, in. t'he present case whr:re the surety bond
was executed in favour of court and by it the sureties undert qok to pay certain amount of money on behalf of the respon- ·
dent if decre«"d by the ~ourt and the compromise decree between the parties introduced complicated provisfons enabling
the appellant to take possession of the properties in adjustment of rival claims, grante_d time, albeit. to both the parties,
to disrharge their obligations thereunder and 'included matters
extraneous to the judicial proceedings in which the surety
bond was executed.
Hild, that the sureties stood. discharged by the compromise decree.
Crvn..
APPELL.ATE
JtJIUSDICTION:
CivH
Appca]s NcEI. 343, 344 and E45 of 59.
Appeals from tbe jud!(ment ar,d ord«r datEd
Janua1y 12, 1950 of the l\1adJBs High Couz.t in
A.,A. 0. Nos. 288 to 290 of 1946.
AUadi ·Kuppuswamy, S. B. Jathar and K. R.
Ohoud4uri, for the appellants. · .
A. V. Viswanatha Sastri, V. Vedantachari and
T. Satyariarayana, for .respondent No·. 2 (in C.' A. No.
345 of 59.)
·
..
··-t
.
. .L
1
)
3 S.C.R.
SUPREME COURT REPORTS
923
T. V. R. Tatachari, for respondents Nos; 3 to 6
(in C. A. Nos. 343 and 344' of 59) and respondents
Nos. 5 to 8 (in C. A. No. 345· of 195Q.)
1962. September
4. The

## Text

>
3 ·s.c.R.
SUPREME COU.B.T REfORTS
921
We accordingly allow the appeals,
set aside
the order of the Board of Revenue and remand
the cases to it for decision in accordance with law.
We further direct it to decide itself the contention
raised by the respondents about their having
acquired adivasi rights under the U.P. Zll.mindari
Abolition and Reforms Act. In case the Boll.rd
takes the view that for deciding the. said issue any
finding of fact is necessary, it may call for the
said finding from the Trial Court and, on rece1vmg
it, proceed to deal with the ,appeals on the merits.
In the circums~anoes of these cases, we direct
that the parties on either side bear their own costs.
Appeals allowed.
RAJA BAHADURi DHANRAJ GIRJI
v.
RAJA P. PARTHASARATHY RAYANIMVARU
AND OTHERS.
(P. B. G.A.JENDR.A.GADKAR and K. a. D.A.s GUPTA, JJ.)
Surety Bond-Executed in favour of Court-Compromise
decree in the Jiroceeding, if effects a discharge-Equitable rule_lndian Contract Act, 1872 (9 of 1872), ss. 135, 126.
Although s. 135 of the Indian Contract Act does not in
terms apply to a surety bond executed in favour of the court,
there can be no doubt that the equitable rule underlying that
section must apply to it. The reason for the said rule which
entitles the surety to a discharge is that he must be able at
any time either to require the creditor to call upon the principal debtor to pay off his debt, or himself to pay the debt and
seek his remedy against the principal de~tor.
·
The question as to whether the liability of the surety is
discharged by a compromise in the judicial proceeding in
which the surety bond is. executed must depend on' the term,
of the bond
~tsc:l'.. If the ter~s indicate ~hat the surety
undertook the habihty on the basis. that the dispute should be
1962
Sham Karlik Si11gll
v.
Mathura
Raghubar Day'l.I J.
1962
Septemb1(4.
I Raja Bahed•ir
qhaaraj (,,irji
'
"·
·: RajaP.
f'arthasarathy
Rayanimcaru
•
922
SUPREME COURT REPORTS
[1963]
decided on the merits by the court and not amicably settled,
the compromise will effect a discharge of the_ surety.
The Offici&l Liquiclators,
The Travanwre National &
·
Quifon Bank Ltd.
v, . The OfficialAssignu of.MadrM I. L. R.
. 1944: Mad. 708, Parvatibai v. Vinayak Balvant, I. L. R. 1938
Born. 794. Mahomtdalli lbrahimji v. Laxmibai, (1929) I. L. R.
LIV B()m. 118, Nar~ngh Maliton \1.
Nirpat Singh, (1932) ·
·I. L. R. XI Patna p90 and Muhammad Yusafv. Ram Gobinda
Ojha, ( 1927) I; L. R. L V Cal. 91, referred to.
.
·
But if the term~ show that the parties and the surety
contemplated that there might be an amicable settlement as.
well, and the surety executed the bond knowin_g that he might
be liable under the compromise decree,
ther~ can be no
discharge and the surety will be lia~Ie under the compromise
decree.
Hdji Ahmed v. Maruti Ram.ii, (1930) I. L. R. LV Born ..
97. AppunnJ Nair v. /sack Maclcadan, (1919) I. L. R. 43 Mad.
272 and Kannilal M oolcerjee v. Kali Mohan Chatterjee; A. I. R.
1957 Cal. 645, referred to.
·
consequently, in. t'he present case whr:re the surety bond
was executed in favour of court and by it the sureties undert qok to pay certain amount of money on behalf of the respon- ·
dent if decre«"d by the ~ourt and the compromise decree between the parties introduced complicated provisfons enabling
the appellant to take possession of the properties in adjustment of rival claims, grante_d time, albeit. to both the parties,
to disrharge their obligations thereunder and 'included matters
extraneous to the judicial proceedings in which the surety
bond was executed.
Hild, that the sureties stood. discharged by the compromise decree.
Crvn..
APPELL.ATE
JtJIUSDICTION:
CivH
Appca]s NcEI. 343, 344 and E45 of 59.
Appeals from tbe jud!(ment ar,d ord«r datEd
Janua1y 12, 1950 of the l\1adJBs High Couz.t in
A.,A. 0. Nos. 288 to 290 of 1946.
AUadi ·Kuppuswamy, S. B. Jathar and K. R.
Ohoud4uri, for the appellants. · .
A. V. Viswanatha Sastri, V. Vedantachari and
T. Satyariarayana, for .respondent No·. 2 (in C.' A. No.
345 of 59.)
·
..
··-t
.
. .L
1
)
3 S.C.R.
SUPREME COURT REPORTS
923
T. V. R. Tatachari, for respondents Nos; 3 to 6
(in C. A. Nos. 343 and 344' of 59) and respondents
Nos. 5 to 8 (in C. A. No. 345· of 195Q.)
1962. September
4. The
Judgment
of
the Co_urt was delivered by
19112
. ltaja Bahadur
L hanraj _Girji
v.
lfoja P • .
Ptrtha1aratl1>
Royanim~aru
GAJENDRAGADKAR, J.-[ After
disposing of
Gajendragadkar .T.
Civil Appeals Nos. 343 and 344 of 1959, his Lordship proceeded as follows.]
That takes us to Civil Appeal No. 345 of 1959
in which the appellant wauts liberty to procee~
againat the surety, respondents Nos. 2 and 3. This ·
claim has been rejected by both the High Court.
But the decision· of the High Court proceeds on the
basis that the appellant was himself a defaulter
and so, he could not be permitted to enforce his
·remedy against tho sureties. Since on the question
of default, we have come to a ·contrary. conclusion,
it becomes necessary to examine whether the appel·
lant is entitled to se~k his remedy against the surety.
In determining this'question, it is necessary
first to enquire into the nature and extent -of the
liability undertaken by respondents Nos. 2 and 3
in executing the surety bond.
The surety bond
was executed on the
2~th Sept-. 1935.
Clause 5 of
the surety bond which is relevant provides that the
sureties covenant that if the order of the High Court
in C. M.A. No. 362/1929 be reversed or varied by
the Privy Council and as a result of the said variation or reversal respondent No. l becomes liable to
pay by way of restitution any amount to the said
appellant in the Privy Council, the sureties would
pay whatever sum may become payable by the
said respondent and that if they failed therein,
then any sum payable shall be realised in the manner specified in the said clause. This bond was
' executed in the favour of the court.
19~2
Raja BallaUu,.
DhanraJ Qbji
••
Raja P.
Parthasarath.1
Ra,Yanimvaru
Gajendraga!-kar J.
924
SUPREME COURT-REPORTS
[1963]
The appellant contends that. as a resq.lt of
. the decision of the Privy Council, the matter was
remitted to the trial Court for ascertaining the
amount due to the appellant and it was during the
pendency of the appeals which were pending in the
Madras High Court against the deci8ion of the trial
Court on the applications made by the respective
parties in the remanded proceedings that the compromise decree was passed between the appellant
and respondent No. l and so whatever is claimable
by the appellant by virtue of .the said comprpmise
decree must. attract the operat.ive portion of clause
5 of the surety bond. On the other hand,. Mr. Sastri
for the surety agrees that the surety bond must be
strictly construed and it is only if the amount
claimed by appellant from respondent No. l can be
said to be the result of the reversal or variation by
the Privy_ Council of the orders under appeal before
it that the surety bond can be proceeded against. Mr.
Sastri urges that when disputes were pending be-
. tween the appellant and respondent No. l before the
Madras High Court, the parties compromised the disputes and the compromise decree which followed acts
as a discharge of the liability of the sureties. In support of this argumerit, i·eliance is placed on 'the
· equitable principles under lying section 135 of the
Indian Contract Act. Mr. Kuppuswamy contests
this position and urges that S. J 35 is inapplicable to.
a surety bond executed in favour of a court and he
argues that appellant's remedy against the snrety
is not affected by the fact that the dispute between
the appellant and respondent No. 1 was amicably
settled and terminated in a. compromise decree.
This controversy raises the question as to
whether s. 135 of the Indian Contract Act or
principles underlying it apply to surety. bol)ds
executed in favour of the court.
Section 135
<
provides that a contract between the creditor and
the principal debtor, by which the creditor makes
3 s.c.R.
SUPREME COURT REPORTS
925
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.
There
can
thus
be
no
doubt
that
&
contract
of
suretyship · to . which
s. 135
applies would be
unenforceable if the debt
in question is compromised between the debtor
and the creditor ·without the aRsent of the surety.
But this provi:iion in terms can.not apply ·to a
surtity who has executed a bond in favour of the
court, because such a contract of guarantee of
suretyship doefl not fall within the scope of a. 126
of the
Contract Act. · A ontract of guarantee
. under the said section postulcates the existence of
the surety, the principal debtor and the creditor,
and thh1 requirement is not satisfied n the case of
a bond executed in favour of the conirt. Such a
bond is given to the court and not to the creditor
and it is in the discretion of the ·court to enforc
the bond or not. Therefore, there cannot' be any
doubt that in terms, the provisions of s. 135 cannot
apply to a court bond. ·
It is also clear that the equitable principfos
underlying the provisions of s. 135 apply to such
a bond. If, for instance, the decree-holder gives
tinie. to the j~dgment-debtor and promises not to
seek his . remedy against him during that period,
there is no reason why the extension of time
granted by the creditor to the debtor should not
discharge the surety even where the surety bond
is executed in favour of the court. T'ie reas1n for
the equitable rule which entitle'! the surety to a
discharge in such circumstances is that tbe surety
should be \Jobie at any time to require the creditor
to c'l.11 upon the principal debtor to pay off his debt
>
or himself pay off the debt and seek his remedy
against the principal debtor. If the creditor has
bound himself not to claim the debt from his
principal debtor, that materially affects the right
1962.
Raja Babadur
l,har.raj Girji
·v.
Raja P.
Prrthafar:athy
Royanimv ... ru
Gajendragadkar J,
Raja Bah.adur
Dhanra; Gi1ji
v.
RafaP.
Parthasaratl)y
RayanimMru
<Jaj1ndragadkar J.
926
SUPREME COURT REPORTS
[1963]
. of the surety and so, whenever time is granted
ti) the debtor by the creditor without the consent
of the surety, the surety can claim discharge. This
equitable principle would apply as much to a surety
bond to which s. 126 of the Contract Act applies
as to a surety bond executed in favour of the court.
Therefore, we see no justificatiop for the argument
that even the equitable principles underlying the
.provisions of s. 135 of the contract Aot should not
apply to surety bonds executed in favour of the
court.
'
. ·
·
·
In determining the question as to whether
· liability under suoh a surety bond is discharged by
reason of the fact that a compromise decree had
been passed in the judioial proceedings in which
the surety bond cam13 to 'be executed, it will always
be necessary to examine the terms of the bond
itself. Did. the surety contemplate when he executed
the bond that the dispute pending between the
debtor and the creditor may lie compromised,
or did he contemplate that· the dispute would,
and must be settled by the court and not
compromised· by the parties?
If the terms of
the bond indicate that the surety undertook the
liability on the b;i.sis that the disp11te would be
·decided on the merits by the court in invitium and
would not be amicably settled, then the compromise
of the dispute would discharge the liability of the
surety (vide The Official Liquidators, The Travancore
National & Quilon Bank Ltd. v. The Official Assignee
of Madras, (1)
Parvatibai
v. Vinayak
Balvant (');
M ahomedalli Ibrahimji v. Laxmibai; ( '); NarsiTIJ}h Muhton
v. Nirpat Singh(') and Muhammad Yusaf v. Ram
Gobinda Ojha. (.') If, on the other hand, from the
term.a of the bond it appears that it was within the
contemplation of the parties including the surety
(I) l.L.R, !944 Mad .. 708.
(2) l.L.R.1918 Born. 794.
(3) (1929) l.L.R. LIV BO!ll· 118.
(4) (i932) I.L.R. XlPa!liaS90.
(S) 11927) I.L.R. LV Cal. 91,
3 S.C.R. .
SUPREME COURT REPORTS·
927
}
that the dispute may be amioably settled and the
surety exeouted 'the bond knowing that his liability
may arise even under the compromise decree, then
· the passim~ of the compromise decree will not entitle
him to claim discharge vide H aji A~med v. MaruJ,i
. Ramji; (e) Appunnz' Naz'r v. !sack Mackadan, (7) and
• K anaz'lal Mookerjee v. Kali Mohan Chatterjee (8). The
question would thus always be one of construing the
surety bond in order to decide whether .a compromise
decree discharges the surety or not.
Turning to the bond passAd by respondents
Nos. 2 and 3 in the present case, it .is impossible to
hold that it was within the contemplation of the
suretifl8 when they executed the bond that thfl parties
would amicably settle their dispute in the manner
they have done. At the time whfln the surety bond
was executed; the dism1te pending between the
parties was the money dispute t,he decision of which
would have ended in an order directing one party
to pay anotheF a certain specified amount. The
compromise decree· has in.troduced complicated
provisions for the. satisfaction of th.e appellant's
claim
against · respondent No. · 1.
Under the
compromise decree, the appeJ.litnt would have been
entitled to take possession of the properties in suit
and' in that process, rival claimR of bot.h the parties
would have beAn adjuste<l.
We· are satisfied that
the material terms in clause 5 of the surety bond
could not be said to be attracted when tlie parties.
chose to scittle their dispute in accordance with the
terms of the compromise agreement. Besides, it is
clear that the coi:noromise agr11ement gave time to
responcient No. l and the decree was, therefore,
not executable immediately after it was· passed.
In substance, by the decree, time was grant.ad
though it is trmi that time was granted to both the
parties to disoharg11 their respective obligations under
(I!) (1930) I..J:..R. LV F.om 97.
. (71 (1919) I.L.R. 43 ,Mad.1?2:
(8) A.J.R, 1957 Cal 645.
. .. ·
•
191JS
Raja Bah•1fir
Dhan¥aj I -ir;i
v.
Ra3a.P:
• Parthasarathy
Rayan imoaru
Gajendragadkar J.
1962
Raja Bahadur
9"
Dhanraj Girji
••
>
Raja P.
Parihasarathy
liaya1,iinvaru
--·
<JaJendraga~kar J.
'
. 928
SUPREME COORT REPORTS
[1963]
the compromise. That is another reason . why we
think the liability of respondents No. 2 and 3 under
the surety bond is discharged as a result of the
compromise decree.
.
...
There is yet another consideration which is
relevant in dealing with this point. It is common
ground that amongst the disputes which were settled
between the parties was included.the claim made by
respondent No. 1 for damages on account of the fact
that the appellant bad created occupancy rights in
favour of strangers in respect of the properties which
were in bis possession as a mortgagee. This claim is
plainly outsid" the proceedings contemplated and
permitted by the order passed by the Privy Council,
and yet this dispute has been settled by the
compromise decree which means that a matter
which was strictly not germ.an·e to: the judicial
proceedings in which the surety bond was executed
bas been introduced by the parties i'n their final
settlement. Therefore, we are satisfied that though·
the appellant succeeds in showing that he was not
& defaulter, be cannot seek his remedy against the
surety, re~pondents·Nos. 2 and 3,
·
An attempt was made by. Mr.
Kuppuswamy
to suggest that respondents Nos. 2 and 3 should not
hav.e been allowed to raise this point before the
High Court, because no such point had been taken
by
them in the trial Court.
We do not think
there is any substance in this argument. It is true
that respondents No. 2 and 3 did not ta\'e any such
contention in the trial Court, but that may be because
parties had then concentrated on the issue as to
who was the defaulter. But when the appeals were
argued before the High Court, this point was
specifically urged by respondent No. 2 and it has
been considered by the High Court. No doubt Mr.
Ku P"swamy ingeniously suggested that this was
nut a pure question of law and so, the High Court
{
3 s.c.R: SUPREME COURT REPORTS
929
should not have allowed it to be raised for the first
time in appeal. The argument is that if the point
had been raised in the Court of first instance, t,he
appellant would have shown that respondents Nos. 2
and 3 had consented to the compromise agreement
between the appellant and respondent No. 1. -This
is clearly an afterthought. If the appellant's case
was that respondents Nos. 2 and 3 were not dis·
charged by the compromise decree because they were
consenting parties to the compromise agreement,
they shoμld nave stated so before the High Court
and the High Court would then have either called
for a fineling on that issue or would have refused
permission to respondents Nos. 2 and a to raise that
point.
·
·
The result is, Civil Appeal No. 345 <>f 1959
fails and is dismissed with costs.
Appeal dismissed.
19/JB
Raia Bahalur
Dhanraj Girj
v •.
RajaP.
Par thasar. IA'
Rayanimva1_u
Gaj1dnragadkar J;: