Report No. 13
105. Section 134.-
There was a conflict of authority upon the question whether a surety is discharged when a creditor allows his remedy against the principal-debtor to become barred by limitation. The Bombay, Calcutta and Madras High Courts took the view that the surety is not discharged; while the Allahabad High Court had taken a different view. In Mahanth Singh v. U Ba Yi, AIR 1939 PC 110,1 the view of the majority of the High Courts was preferred.
It was held that not every unenforceable contract was declared void, but only those 'unenforceable by law', and that those words meant not unenforceable by reason of some procedural regulation, but unenforceable by substantive law. A mere failure to sue within the time specified by the statute of limitation or an inability to sue by reason of the provisions of one of the Orders under Civil Procedure Code would not cause a contract to become void. It was observed that sections 134 and 139 were merely declaratory of the law in England.
1. The Allahabad High Court expressly overruled its earlier decisions to the contrary in Aziz Ahmed v. Sher Ali, AIR 1956 All 8 (FB).
We recommend that an Explanation be added to clarify this position and the view of the Privy Council be adopted.
106. There has been a difference of opinion between the Madras and the Nagpur High Courts as to the effect of Debt Relief Acts upon the liability of the surety. In cases where the creditor proves his debt but the debt is scaled down by the Board, the Madras High Court1 has taken the view that the surety is liable only for the reduced amount, while the Nagpur High Court2 has held that the surety remains liable for the whole of the original debt. In agreement with Pollock and Mulla,3 we prefer the opinion of the Madras High Court, which appears to be more in consonance with justice. This conflict, however, does not necessitate any change in the language of the section.
107. Sections 135-140.- No change is considered necessary in sections 135 to 140.