2189D

IN THE LEARNED DISTRICT AND SESSIONS COURT

AT JODHPUR, RAJASTHAN

IN THE MATTERS OF

ROHAN (REPRESENTED BY HIMSELF)

PLAINTIFF

v.

RAHUL & ORS. (REPRESENTED BY THEMSELVES)

DEFENDANTS

[Under Order 7, Rule 1 of the Code of Civil Procedure, 1908]

ON BEHALF OF THE DEFENDANTS

 TABLE OF CONTENTS

TABLE OF CONTENTS.........................................................................................................2

INDEX OF AUTHORITIES...................................................................................................3

STATEMENT OF FACTS......................................................................................................4

STATEMENT OF JURISDICTION......................................................................................5

ISSUES FOR CONSIDERATION.........................................................................................6

I. Whether Rohan can liquidate the securities under the 1st Agreement as per section 140
of the Indian Contract Act......................................................................................................6

SUMMARY OF ARGUMENTS.............................................................................................7

I. Whether Rohan can liquidate the securities under the 1st Agreement as per section 140
of the Indian Contract Act......................................................................................................7

ARGUMENTS ADVANCED..................................................................................................1

I. Whether Rohan can liquidate the securities under the 1st Agreement as per section 140
of the Indian Contract Act......................................................................................................1

a) The Debt has not been discharged as per section 140 to claim the rights...................1

b) The two Transactions are distinct and its not a sole transaction.................................3

c) The Surety Rohan is not Privy to the arrangement in Agreement 1............................4

d) Surety has no right to liquidate the security before the claim of the creditor is
satisfied................................................................................................................................
4

PRAYER FOR RELIEF..........................................................................................................6

ii
 INDEX OF AUTHORITIES

CASES

Chunduri Panakala Rao v. Atmuri Venkata Sarvesam AIR 1936 Mad 342..............................3

Heym an v. Dubois, L. R. 13 Eq. 158........................................................................................4

Hobson V Bass 1971 6 CRA 772...............................................................................................2

Janwatraj v. Jethmal, AIR 1958 Raj 343....................................................................................4

K.V. Periyamianna Marakkayar And v. Banians And Co,AIR 1926 Mad 544.........................4

P. Janakiram Chetty v. Punjab National Bank AIR 1968 Kant 56............................................3

Parvateneni Bhushayya v. Potluri Suryanarayana And Ors AIR 1944 Mad 195.......................1

STATUTES

Indian Contract Act (1872), Section 126...................................................................................2

Indian Contract Act (1872), Section 128...................................................................................2

Indian Contract Act (1872), Section 140...................................................................................1

Indian Partnership Act (1932), Section 25.................................................................................1

BOOKS

Sheldon, Law of Subrogation, Para 115, Pg 167.......................................................................2

iii
 STATEMENT OF FACTS

I. Rahul and Raj entered into an agreement with Punjab National Bank to obtain loan for
their business of handicrafts in partnership with their family house as security dated
13th August 2018………………………………………………………. [Agreement I]
II. On 22nd May 2021, Raj took a loan from the bank for which Rohan was the surety, as
demanded by the bank. Subsequently, Raj defaulted and Rahul was called upon by the
bank to pay the amount. ………………………………………………. [Agreement
II]
III. On 19th September, 2022, Rohan paid to the bank a sum in full discharge of the
principal and interest due. Rohan, the surety, now wants to claim subrogation against
Raj by choosing to liquidate the family house which has been given as security under
the first contract.
IV. This claim is resisted by Rahul and the Punjab National Bank. And so, Rohan filed a
suit before the District and Sessions Court, Jodhpur against them.

Hence, the present matter is before the court.

iv
 STATEMENT OF JURISDICTION

The defendants have approached this Learned District and Sessions Court of Jodhpur to hear
and adjudge upon the present matters of:

Under Section 16 of The Code of Civil Procedure, 1908

Defendant 1 and Defendant 2 have been joined as parties to the dispute under Order I Rule 3

of the The Civil Procedure Code, 1908.

All of which is most humbly and respectfully submitted.

v
 ISSUES FOR CONSIDERATION
A) WHETHER ROHAN CAN LIQUIDATE THE SECURITIES UNDER THE 1ST AGREEMENT
AS PER SECTION 140 OF THE INDIAN CONTRACT ACT.

vi
 SUMMARY OF ARGUMENTS

I. WHETHER ROHAN CAN LIQUIDATE THE SECURITIES UNDER THE 1ST AGREEMENT
AS PER SECTION 140 OF THE INDIAN CONTRACT ACT

It is submitted that, the Plaintiff doesn’t have the right to liquidate the securities under the
1st agreement, as the two transactions are distinct, the surety is not privy to the said
arrangement. Further even it is conceded that has the right , since the debt is not
discharged in this case there is no right and even if it is discharged the right to liquidate is
with creditor first and then the surety.

vii
 ARGUMENTS ADVANCED

I. WHETHER ROHAN CAN LIQUIDATE THE SECURITIES UNDER THE 1ST AGREEMENT
AS PER SECTION 140 OF THE INDIAN CONTRACT ACT
Section 140 of the Indian Contract Act provides that upon payment of the guaranteed sum by
the Surety, the surety is vested with rights over the securities held under the contract.The
essentials of the said section is that there must be a discharge, and read with 141 of the
contract act, there is a vestation of rights over the securites.

However in the given case there has been no discharge as required under the section, and
even if there is a discharge the surety has no rights over the security. As there are two
separate transactions and the surety is not privy to the 1 st agreement. Further even if there is a
right, the surety cannot liquidate the said assets immediately.

b) The Debt has not been discharged as per section 140 to claim the rights.
1. The Applicable law on this matter stems from Section 140 of the Indian Contract,
which provides for the right of subrogation of the surety.1 This provision provides an
automatic assumption of the rights of the surety over the creditor upon payment by the
surety. However, the same has been framed under the assumption that there is one
debt. This creates a void in the applicability in the cases where there is more than one
debt which is guaranteed. The security provided to a common creditor. The question
thus left unanswered is when is there discharge as per section 140 giving rise to the
right to securities of the creditor. The court has answered this question through
judicial developments. There have been broadly two scenarios modelled on the
relationship of the debts. One scenario is where the debt is specific and the payment
of which gives the right of security to the surety immediately. However when the debt
is not specific in the sense that its part of the overall debt then it doesn’t give such a
right to the surety on discharge of a part of it. 2For example, if A and B in a
partnership take debt from C furnish security, and further take 50000 to which D is
the surety. In this case upon payment of a part that is 50000 D gets right in the
securities proportionate to that amount, however if there was no such specification
provided then upon D taking some amount and then the surety pays of that amount,

1
Supra, note 4.
2
Parvateneni Bhushayya v. Potluri Suryanarayana And Ors AIR 1944 Mad 195

1
 since in this case the debt taken is part of the whole debt, the surety provided will be
for the whole of the debt but the surety itself will be paying off a part which means
that the debt is not yet discharged. Since there has been no discharge if there its part
of the whole debt , the surety will not have right.
2. The manner in which this is determined is on the way it is constructed that differs on
the facts of the said case. Hence a logical deduction is needed. In Hobson v Bass3 the
manner in which it was identified was whether it was specifically provided or not,
3.

3
Hobson V Bass 1971 6 CRA 772

2
 c) The two Transactions are distinct and its not a sole transaction.
1. A perusal of cases on this matter, provide that there must be some intention of the
parties to be jointly liable in a transaction. In Chunduri Panakala Rao v. Atmuri
Venkata Sarvesam4 there was a joint liability undertaking by the parties.
“The business relationship between the several payees under the promissory
notes is not disclosed in the promissory notes themselves, but it appears from
a letter, Ex. F, executed and delivered by them to the Imperial Bank on 24th
July 1928. In this letter they declared that they were trading in partnership
under the style of "Potluri Suryanarayana brothers and Chitta Venkateswarlu,
Anne Veerayya Dosapadu" and agreed that all transactions entered into by
either or any of them whether under the signature of the firm or subscribed by
the individual signature of the persons entering into the transaction might be
regarded by the bank as entered into and on behalf of the firm. This admission
of the existence of the relationship of partners between the endorsers has been
sought to be got rid of as being untrue in fact and we shall revert to this point
later.”
This provided that though there were several debts undertaken their liability will be
joint and it will be construed as a single transaction. In the case of P. Janakiram
Chetty v. Punjab National Bank Ltd5 there was emphasis on whether there was a link
between the two debts. The joint liability of the partners is specifically excluded by
the Indian Partnership act under Section 256, for cases where the partner doesn’t act in
the capacity of the firm.
2. The Implication of join transaction is that where there is a joint judgement debtor or a
firm which is undertaking the said debt, this provides the surety a right over the said
securities to be subrogated under Section 140 of the Indian Contract act.7
3. In the Instant Matter, It is agreed that there is a partnership firm that exists between
Rahul and raj, however the contention here is whether the debt taken is a sole
transaction or a joint transaction of the firm. Going by the said authorities in the
absence of an undertaking that the liability of the parties is joint, and also given the
fact that the Rahul undertook the loan for his personal purpose it’s a sole transaction.
4
Chunduri Panakala Rao v. Atmuri Venkata Sarvesam AIR 1936 Mad 342.
5
P. Janakiram Chetty v. Punjab National Bank AIR 1968 Kant 56.
6
Indian Partnership Act (1932), Section 25.
7
Indian Contract Act (1872), Section 140.

3
 The Implication of which is that the Surety has not right to claim securities entrusted
under the 1st agreement.

d) The Surety Rohan is not Privy to the arrangement in Agreement 1

1. Section 1268 of the Indian Contract Act read with 1289 of the contract act provides
that, a contract of guarantee is a tripartite arrangement between the creditor debtor and
the surety. One of the essential features of this agreement is that of privity. The term
privity of contract is that connection or relationship which exists between two or more
contracting parties.10 The rationale being that there must be meeting of minds with
regards to the terms of the contract. In the matters of Subrogation, this privity is
extended to the rights that once can claim under section 140 of the Indian Contract
Act.11
2. In the Instant Matter, there are two separate arrangements, one with the bank where
there is security and the other one is the surety, since for the second debt. In this case
as distinguished from the case of Chanduri Panakala Rao v. Atmuri Venkata
Sarvesam,12 there is no joint liability clause that the surety is privy to. Hence, he is not
privy to the 1st arrangement itself. Thus, as far a right over securities in the 1 st
arrangement is concerned it cannot be claimed due to a lack of privity to that
arrangement.

e) Surety has no right to liquidate the security before the claim of the creditor is
satisfied.13
Noted authorities on this matter, have determined the order in which the securities are to be
liquidated. When there are two debts and the surety has provided a debt. The surety has the
right to subrogated using the securities. However, the claim is to be exhausted only upon the
exhaustion of the claim by the creditor.14

In the Instant Matter, even it’s conceded that the surety has the right to be subrogated through
the surety. The security cannot be liquidated immediately as the creditor’s claim has to be
satisfied first out of the said debts and then only will the surety’s. Hence the security cannot
be liquidated immediately.

8
Indian Contract Act (1872), Section 126.
9
Indian Contract Act (1872), Section 128.
10
Janwatraj v. Jethmal, AIR 1958 Raj 343
11
K.V. Periyamianna Marakkayar And v. Banians And Co,AIR 1926 Mad 544
12
Supra, note 1.
13
Sheldon, Law of Subrogation, Para 115, Pg 167.
14
Heym an v. Dubois, L. R. 13 Eq. 158

4
4. On 23rd July 1868 Jesse Hobson agreed to stand guarantee for Edmund Hobson for
the due payment of all such goods whether supplied previously or supplied from time
to time afterwards to him, until the guarantee should be withdrawn by notice, but so
as the surety's liability under the guarantee was not at any time to exceed the sum of
£250.
5. In the Instant Matter, Its provided under the first agreement executed on 13 th august
2018, to secure loans by furnishing the said security. Further there is additional laon
taken by Raj a partner on 22nd May, 2021 to which Rohan is the surety. Going by the
authorities on this matter, the relationship of the debt is that its part of the agreement
to get loans. Since the agreement of guarantee itself is not specific. The construction
would make this fall in the class of scenarios. Where the discharge is required of the
whole debt for the surety to have rights of the securities entrusted. Thus in this case
since the whole debt itself has not been paid off by the surety and that a part of it has
been paid off there wouldn’t be any right over the securities.

5
 PRAYER FOR RELIEF

Wherefore, in light of the facts stated, issues raised, arguments advanced, and authorities
cited, the defendants most humbly and respectfully request the learned District and Sessions
Court to adjudge and declare:

I. That the Plaintiff cannot choose to liquidate the family house which has been
given as security under the first contract dated 13th August 2018.
II. The civil suit so filed by the plaintiff as dismiss.

And pass any other order it may deem fit in the ends of justice, and good conscience.

All of which is most humbly and respectfully submitted before this Court.

Date: 31st March, 2023 Counsel No.: 2188D

Place: Jodhpur (Counsel for the

Defendant)