A R KRISHNASWAMI AIYAR Vs. TRAVANCORE NATIONAL BANK, LTD, REPRESENTED BY JVPIRRIE AND CGILL, PROVINCIAL OFFICIAL LIQUIDATORS

JUDGEMENT

(1.) This is an appeal by the defendants in a suit filed against them in the City Civil Court by the plaintiffs the Travancore National Bank, Ltd. The cause of action is very simple. It is on a surety bond Ex. I by which the defendants made themselves liable to pay to the plaintiffs the amount due from one K.E. Sodawalla. Under Ex. I it will be seen that Sodawalla had been declared the successful bidder at the auction chit on the 9 February, 1935, and that he was paid a sum of Rs. 3,145. The evidence on behalf of the bank was as given by P.W. 1 that they refused to pay that amount unless, as was their custom, sureties were furnished by the successful bidder of the chic fund. Two such sureties were forthcoming and they are now defendants 1 and 2 in this case. They signed a very formidable document Ex. I from which it will be seen that they made themselves liable in as comprehensive terms as possibly could proceed from the draftsman's pen. The term with which we are immediately concerned is contained in Clause 9 in which it is said: it is further agreed that any contract between the borrower and the lender by which the lender makes a composition with or promises to give time or not to sue the borrower will not discharge the surety or sureties.

(2.) In fact under Ex. II the creditors of Sodawalla including the Travancore National Bank the plaintiffs in an Insolvency Petition No. 541 of 1935 (High Court, Madras) agreed to accept a sum of 4 annas in the rupee in full satisfaction of their claims; so that there was as envisaged by Clause 9 a composition. The suit was laid for the whole of the amount due under the bond but it was rightly held in the lower Court that a decree could only be given for the amount less the amount received by the bank under the Composition Ex. II.

(3.) It has been argued before us that this composition bond extinguishes the debt to the principal debtor and therefore there is no debt for which the sureties can be made liable. These very arguments have been put before the Courts in cases where the document was as identical with the document before us as it is possible for it to be with regard to its terms. In Cowper V/s. Smith (1838) 4 M. & W. 519 : 150 E.R. 1534, a document such as this was considered and the same arguments as will be seen from the report were put before the Court. Lord Abinger, C.B., stated that the deed entered into by the debtor was a composition deed and was within the express terms of the guarantee. It authorised the plaintiffs to compound with their debtor. Accordingly as the surety had expressly contracted to remain liable, notwithstanding the discharge of the principal, it cannot now be contended that the discharge of the principal is an implied discharge of the surety. And with that the other learned Judges concurred. In a further decision in The Union Bank of Manchester V/s. Beech (1865) 3 H. & C. 672 : 159 E.R. 695, where Cowper V/s. Smith (1838) 4 M. & W. 519 : 150 E.R. 1534, was considered, Pollock, C.B., disposed of an argument which has also been put before us in this case. He holds that the only distinction between the case of Cowper V/s. Smith (1838) 4 M. & W. 519 : 150 E.R. 1534, and the case before the Bench was that in the case then under consideration there was an absolute release but that in Cowper's cases although there was not in terms a release there was what substantially amounted to the same thing. The learned Judge continues: Under a composition, a part is taken in satisfaction of the whole. Money accepted as a part of a debt is not a composition, but a part payment. Where there is a release, the creditor in effect says to the debtor, I release you from your debt ; whereas, if there is a composition only, the creditor in effect says, I agree to accept a portion of your debt in satisfaction and discharge of the whole. The difference, however, is merely technical, and in substance they are the same thing.