2002 PLP 643 (CLD)

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12. Though as between myself/ourselves and the Lessee I am/we are surety(ies) only for the Lessee, yet as between myself/ourselves and yourselves I/we and each of us shall jointly and severally be deemed a Principal debtor/debtors and primarily liable for all the monies the payment of which is hereby guaranteed and accordingly, we shall not be discharged nor shall my/our liability be affected in any manner whatsoever by an act, thing, omission or means whatsoever whether known if I/we had been Principal debtors) and all sums of money which may not be recoverable from me/us on the footing of a guarantee whether by reason of any legal limitation, disability or incapacity on or of the lessee on any other fact or circumstances and whether known to you or not shall nevertheless be recoverable from me/us as if I/we and each of us were the sole and Principal debtor(s). 13. ...... ............... 14. ............... 15. ...... ...............

16. That this Guarantee shall be enforceable, notwithstanding any change in the constitution of the Lessee by its absorption or amalgamation with any other body or bodies corporate or by operation of law or notwithstanding the winding up, dissolution or bankruptcy of the Lessee, or the commendation or seizure of the property or business of the Lessee by any authority or Court or the appointment of any Receiver of Liquidator in respect of any all property or business or affairs of the lessee or cessation of business by the lessee for whatsoever reason and in every one of these events, we shall make payment to you as described in paragraph 14 hereof." It is the case of Mr. Akber Mirza, Advocate that under the aforesaid provision provided in the Letters of Guarantee and specially under paras.12 and 16 thereof, it is clearly provided that, notwithstanding that any commendation, seizure or the property or business of the Lessee by or under any authority of the Court or by an appointment of any Receiver or Liquidator or cessation of business the Guarantor shall continue to be liable. Mr. Akber Mirza has also referred para. 12 of the Guarantee in which according to him it is stated that the 'Guarantor' shall be treated as 'Principal' and are, therefore, liable as the principal debtor. The provisions of the guarantee under the Contract Act would thus not apply. He has referred to the Halsbury's Laws of England, Volume 18, IInd Edition which reads as under:‑ .In order to enable a creditor to deal as he likes with principal debtor without discharging the surety, guarantee often provide that the creditors shall be at liberty to act as though the surety were a principal debtor, and to regard him as such .." On the other hand Mrs. Sadaf Yousaf, Advocate has stated, that, in fact when the defendants Nos.2 to 5 were in control of the Company, National Development Leasing Corporation Ltd. (N.D.L.C.) had filed, Suit No.1410 of 1997. However, after the take‑over by the new Chief Executive, on the order of this Court in J.M. No.39 of 1997 on the application filed by N.D.F.C. in accordance with the order, dated 4‑12‑1997, the present plaintiff (N.D.L.C.) entered into a compromise with the defendant No. 1, which by then was practically under the control of National Development Finance Corporation/ Chief Executive appointed by Court. Ms. Sadar refers to clause No.2 of the said application which has been filed in Court:‑‑‑ "...2. The management, administration and control of defendant No. l has been transferred to National Development Finance Corporation (N.D.F.C.) as the leader of Consortium of lenders including the plaintiff and National Development Finance Corporation is preparing a scheme/arrangement for payment to all creditors of defendant No. 1 including the plaintiff ." According to said application it has been argued by Ms. Sadaf that the N.D.F.C., the leader of the Consortium which included N.D.L.C., the plaintiffs herein, and in Suit No. 1410 of 1997. It is stated that N.D.F.C. were preparing a scheme/arrangement for payment to all the Creditors of the defendant No.1 which included N.D.L.C. Emphasis is placed on the word, 'the Creditors' or 'the Consortium included the plaintiff, and N.D.F.C. was a leader of the said Creditor/ Consortium. It is on this assertion, that the suit was withdrawn by N.D.L.C., however, with permission to file a fresh suit, "if and when considered necessary". According to Ms. Sadaf this was a composition with the principal debtor and that too behind the back of the defendants. In view of the position taken up, Ms. Sadaf. Advocate states that, in the application under Order XXIII, rule 3 it is clear that the defendants Nos. 2 to 5 had not signed it though their names appeared, and had not agreed to compromise wherefore, according to her, such will be hit by the provisions section 135 of the Contract Act which reads as under:‑‑ "

135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.‑‑‑A contract between creditor and the principal debtor, by which the creditors makes a composition with, or promises to give time to, or not to sue, the principal debtors, discharges the surety, unless the surety assents to such contract." According to her the plaintiff had made a composition with the defendant No.1 in control of the N.D.F.C./Chief Executive, that the recovery would be affected in accordance with scheme/arrangement to be finalized by N.D.F.C. the lead bank of the Consortium, of which the N.D.L.C. was a part. The plaintiff; therefore, had converted and agreed to enlarge the time for payment of the dues payable by the defendant No.

1. Therefore, by giving time, without' the consent of the Guarantors, according to Ms. Sadaf, the Creditor having made composition with the Debtors, the guarantees stood discharged. Ms. Sadaf has referred to the case of Federation of Pakistan v. National Bank of Pakistan (1981 CLC 847 (D.B:) in which case a similar question had come up it was held that:‑‑ "'The main contest was between the appellant and respondent No. 1 National Bank of Pakistan and that also on a limited question whether the guarantee stood by National Bank of Pakistan on behalf of Messrs Dabistan Limited to repay the loan could be deemed as discharged for the reasons, that no consent was obtained from the said Bank when time was extended by the appellant to pay back the loan." "It is imperative that in case the extension is granted by, the Government, consent of the surety must be obtained which is not done in the instant case as is apparent from the evidence on the record as such the guarantee stands discharged. In view of the legal position we are entirely in agreement with the findings of the learned Single Judge and in conclusion we dismiss this appeal with costs." In the case of Begum Zia Farhat Awan v, Islamic‑ Republic of Pakistan (1993 CLC 365) a similar view was taken. Ms. Sadaf has also referred to the case of Pirthi Singh v. Ram Charan Aggarwal (AIR 1944 Lahore 428) in which a similar view also been taken. According to her on the ground alone, that the plaintiff had earlier compromised with the defendant No.1 the Guarantors, the suit is liable to be dismissed against the defendants Nos.2 to

5. The principle underlying the revocation or discharge of guarantee are provided in sections 133 to 141 of the Contract Act. Under section 133 a variance, made without the surety consent, discharge a surety in respect of transactions subsequent to the date of the variance. Under section 134 the surety is discharged by any contract between the Creditors and Principal by which Principal debtor is released or by any act or omission by the Creditor, the legal consequence of which is the discharge of the Principal debtor. These provisions clearly state that the surety could be discharged of their liability in the event of any occurrence as mentioned therein. Section 135 is indeed a different provision, which categorically provides for a situation, where the Creditors and Principal debtors makes a composition with, or where the Debtor promises to give time to the Principal debtors, the surety would stand discharged. No doubt provisions are contained in the agreement, that the guarantee would not be discharged by any act of the Court, takeover or otherwise any order passed by a Court. No doubt that the terms of the contract are binding on the Guarantor, however, in the present case none of the provisions contained in the guarantee would be applicable as the promise is between the Principal debtor and the Creditor, namely, the plaintiff herein who have allowed to give the Principal debtors time for payment without reference, to the surety or the Guarantor. In fact, the assertion and emphasis by Mr. Akber Mirza that permission was granted for filing of a fresh suit but such is qualified in the application itself "if and when considered necessary". The implication of these words would be when, the Promisor namely N.D.F.C. the leader of the Consortium of lenders who had in fact taken over the defendant No.1 fails to pay the promised amount. It is clear that and as has been in the judgment Pirthi Singh v. Ram Charan Aggarwal (AIR 1944 Lahore 428) at page 430:‑‑ ......A contract was made between the creditor and the debtor by which the former had promised to give time to the debtor and instalments were fixed without the surety's assent or even knowledge which prevented him to require the decree‑holder from calling upon the principal debtor to pay off the entire debt or to pay the entire debt himself and then to recover it from the principal debtor see (1812) 128 E.R. 405 and 56 Mad. 652 at pp. 633/634. Moreover, the creditor had not only deprived the surety of the benefit of the security which the former had against the principal debtor but had generally acted in such a way as to be inconsistent with the right of the surety and the eventual remedy of the surety was in consequence impaired." It has further been held on page 431 that:‑ The general principle of equity in relation to sureties was thus stated by Lord Loughborough in (1795) 2 Ves. Jur. 540 = 30 E.R. 705; "It is the clearest and most evident equity not to carry on any transaction without the privity of him (the surety), who must necessarily have a concern in every transaction with the principal debtor. You cannot keep him bound, and transact his affairs (for they are as much his as your own) without consulting him." The assertion of Mr. Akber that the suit has been filed, as no payment has been made and nor has any positive orders been given by N.D.F.C. or the defendant No. 1, for making the payment in future. According to him, 'therefore, the only position is, that the plaintiff could fall back on the original consideration. Thus, according to him the guarantors would be liable for the dues. I do not agree with this proposition. The assertion has to only be read with the application under Order XXVIII, rule 1, in which the plaintiffs have disclosed the promise to pay was made by N.D.F.C. by giving a scheme/arrangement. The withdrawal of the suit was thus, a consequence of the agreement between the plaintiff and the defendant No.1/N.D.F.C. without reference being made to the defendants Nos.2 to

5. When the agreement was entered into and referred to in the aforesaid application, the plaintiff cannot be allowed to revert to the original position, by now saying that they reserved to file a fresh suit. The fresh suit would not be on the original cause, but on the subsequent cause. The withdrawal has also not, been pleaded in the present salt. The defendants Nos.2 to 5 cannot also be made liable on that account. It is clear, therefore, that the surety stands discharged. In view of the above the suit is dismissed against the defendants Nos.2 to

5. The suit in the circumstances is disposed of. Q.M.H./M.A.K./ N‑87K Order accordingly.