JEKKANNU SAMI AIYAR Vs. MUTHUKUMARA RAMASWAMI CHETTIAR MAJOR

JUDGEMENT

(1.) This appeal raises a question as to the liability of a surety when his principal's debt has been extinguished by an act which causes the merger of the estates of the debtor and the creditor. As the facts have been set out in my learned brother's judgment, I will not recapitulate them. Ordinarily the liability of a surety is co-extensive with that of the principal debtor, unless it is otherwise provided for. There is no provision to the contrary in the security bond executed on January 16th, 1917 by the appellant and his mother. Therein they declared that they would stand as sureties and make themselves responsible for the amount of Rs. 225 that might be found due to the plaintiffs (from the defendants). An illustration of the effect of Section 128 of the Contract Act occurs in Sheik Suleman V/s. Shivzan Bhikaji (1887) I.L.R. 12 Bom. 71 where it was observed that if an amount recoverable by a plaintiff from a defendant debtor is diminished in appeal, the surety's engagement, being one of indemnity, would diminish in like proportion. So if the sum recoverable became zero owing to the decree being reversed, the surety's liability would also be reduced to nothing The present is not a case of a continuing guarantee, or of time being given to the principal debtor, or of the terms of any contract between the creditor and the debtor being varied. Therefore the references by the respondent's vakil to Secs.129, 130, 133 and 135 of the Contract Act and to Subroya Chetty V/s. Ragammal (1904) I.L.R. 28 M 161 : 14 M.L.J. 482 are not to the point. Nor is there any question of the remedy against the principal debtor becoming barred by limitation or being kept alive by payment, as to which it was held in Brajenndra Kishore Roy Choudhury v. Hindustan Co-operative Insurance Society (1917) I L.R. 44 CM. 978 that Section 128, Contract Act, would not prevent the liabilities of the principal and the debtor being distinct in matters of limitation and in Jambu Ramaswamy Bhagavathar V/s. Sundararaja Chetty (1903) I. L. R. 26 M. 239 that Section 134, Contract Act would not help the surety.

(2.) The main question to be decided in this case is whether the 1 defendant's debt became extinguished in consequence of the merger of his estate with the estate of the plaintiffs (respondents). If that question is answered in the affirmative it will follow from Secs.128 and 134 of the Indian Contract Act that the respondents cannot proceed to recover anything on account of mesne profits from the appellant who stood as surety for the 1 defendant. In other words the question is whether the legal consequence of the creditor's act in taking over the 1 defendant's estate was to discharge the principal debtor. The principle of merger has been described in Banarsi Das V/s. Maharani Kuar (1883) I.L.R. S All, 27 as a union in the same persons of the character of debtor and creditor and its origin has been traced to the confusie of Roman Law. In Kudhai V/s. Sheo Doyal (1888) I.L.R.10 All. 570 it has been further explained by Mahmood, J. who observes at page 575 that a man cannot be his own creditor or the mortgagee of his own rights. Lord Halesbury in Vol. 13 of his Laws of England p. 146 states: "At Law, when a less estate was vested in the same person as a greater estate without any intermediate estate between them, the less estate merged in the greater and was extinguished, without rgard to the intention of the parties concerned. But equity is not guided by the rules of law as to merger" and so the question whether merger takes place "depends upon the intention, actual or presumed, of the person in whom the interests became united." So, as I observed in my judgment in C.R.P. No. 980 of 1917, the question of merger is one of intention, and in the case of a limited owner the presumption is against a merger. Section 101 of the Transfer of Property Act which creates a statutory merger has no application to the present case of a personal decree obtained against the 1 defendant for future mesne profits at the rate of Rs. 75 per annum. But the principle of merger exists independently of statute, and the Transfer of Property Act has been treated as codifying the law that already existed prior to its enactment. In Kudhai V/s. Sheo Dayal (1888) I. L. R. 10 All. 570 the principle is stated to apply whenever rights devolve either by inheritance or are acquired under a valid transfer if the result of such devolution or acquisition is that the estates of the judgment- creditor and the judgment-debtor or of the mortgagee and the mortgagor become united in whole or in part in the person of a single individual. From the intention of the parties in the present case it might be held that there was no merger when the 2nd defendant Nagammal succeeded to the estate of her deceased son 1 defendant, as the former was a limited owner and the decree remained executable against the 1 defendant's estate under Section 50, C.P.C. But when she surrendered the whole estate to the plaintiffs as being the nearest reversioners, reserving for herself nothing but a right of maintenance under Ex. II, it cannot be supposed that these reversioners intended to keep alive a debt owed by the estate to themselves, a debt of which no mention is made in Ex. II. They took over among others the properties which were pledged by the 1 defendant's guardian as security for reimbursement of the sureties in the event of their having to pay the 1 defendant's decree debt for mesne profits. What they must be deemed to have got in succession by 1 defendant's untimely death and his mother's release deed was the balance of his estate after wiping out his debt to them. Respondents vakil attempted to support the lower appellate Court's judgment by several other arguments. He contended that the rules as to creditors and debtors would not apply to this case, as the bond was executed under Section 145, C.P.C. in favour of the Court in the form given in Appendix H No. 13. He maintained that this procedure made the Court the creditor and prevented the surety from pleading discharge under Section 133 or 135 of the Contract Act on account of any variance of the terms or any composition between the creditor and the debtor. It is impossible to conceive how the execution of the surety bond in favour of the District Munsiff converted that officer into a creditor in respect of the decree debt. Section 145 has been enacted for the purpose of expeditious enforcement of liabilities against sureties, in order to avoid the cumbrous procedure of assigning the bond to a decree holder and his instituting a separate suit upon it. The surety can put forward in those proceedings any defence that is open to him, and for the purpose of appealing against any order that is made against him he is expressly declared to be deemed to be a party within, the meaning of Section 47. Though the security bond may be executed in favour of the Court, the Court holds it for the benefit of the decree-holder. No doubt it was held in Ramanathan Pillai v. Doraiswami Aiyangar (1919) I.L.R. 43 Mad. 325 : 38 M. L. J. 65 that if the surety wants to get the bond cancelled, he must proceed by regular suit, but it was admitted that he might become a party to execution proceedings when an application was made for an order against him. This case is not an authority for the startling proposition now advanced that in proceedings under Section 145 a surety is precluded from raising any defence.

(3.) Then it was argued that the incidents connected with the merger of estates would not attach where the decree-holders obtain the 1 defendant's estate long after delivery of their share of property and some time after the estate vested in 1 defendant under a release deed of conveyance, and not by the mere operation of Hindu Law. But it is the surrender of the widow of her life estate by means of a deed that brings the Hindu Law into operation and it is immaterial when the surrender took place. Lastly stress was laid on the fact that the arrears accrued during the life time of 1 defendant and gave rise to a personal liability against him which had not been extinguished. On the death of a judgment debtor however, execution can only under Section 50 C.P.C. be taken out against his property in the hands of his legal representative. This judgment debtor's property is now in the hands of the decree-holders. When it is apparent that they can now do nothing but take out execution against themselves, the argument ends in a reductio ad absurdum.