Charan Singh vs Security Finance (P) Ltd.

Charan Singh vs Security Finance (P) Ltd.

Citation(s): AIR 1988 Delhi 130

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Facts:

The creditor after obtaining the money decree against the two principal debtors (PDs) and the Surety, holding them liable severally as well as jointly, decided to pursue his cause of action against the Surety, after he arrived at an agreement with one of the principal debtors whereby he agreed to accept lesser amount than the judgment-debt, from him (He did not pursue any cause of action against the representatives of other PD after latter’s death). The surety claimed his discharge from the liability.

Issue:

Whether the fact that after the money decree has been passed against the principal debtor and a surety, making them jointly and severally liable to the creditor, decree holder (creditor) enters into a settlement with the principal debtor and agrees to accept some less amount from him and decides not to proceed for recovering the remaining amount from him has the effect of discharging the surety/judgement-debtor or not?

Held:

“After a decree has been passed the character of the principal debtor and the character of the surety change into those of co-judgement debtors. The provisions of S. 133 to 139 of the Contract Act apply only where no decree has been passed by the court…The subsequent dealing with the principal debtor does not operate to discharge the surety from a liability under which he is [liable], no longer as a surety, but under the decree… The above provisions of the Contract Act which govern the rights and liabilities of the creditor, the principal debtor and surety, cease to operate after the rights and liabilities are determined and declared by a decree.”

Therefore, the Court held that the Surety was not discharged by the very fact that he no longer remained a surety under the contract rather became judgment debtor under the decree; his rights and liabilities to be governed no longer by the Indian Contract Act but by the decree provisions.

Author: Vishrut Kansal

Editor: Vivek Verma