CASE ANALYSIS

Osman Jamal & Sons Ltd. v. Gopal Purshottam

CITATION - AIR 1929 Cal 208

FACTS
Current realities of the case are as per the following: An organisation was acting as
the commission agents of the defendants' firm and in that limit purchased specific
products for the defendants which they neglected to take. The provider became
qualified to recuperate from the organisation a certain amount of cash as damages
for breach. The organisation went into liquidation prior to paying the claim. The
organisation sued the defendant for the payment.

ISSUE
The primary issue for the case was: When does the indemnifier become
responsible to pay, or , when is the indemnity holder qualified for recuperate his
repayment?

JUDGEMENT
It was held that the Official Liquidator could recuperate the sum despite the fact
that the organisation had not really paid the merchant. The court, notwithstanding,
coordinated that the sum ought to be separate so it is utilised in full payment of the
seller in regard of whose agreement the organisation had incurred liability.The
High Courts of Allahabad1, Madras2 and Patna3 have all communicated their
simultaneousness in the rule that as soon as the liability of the indemnity holder to
pay turns out to be clear and certain he ought to reserve the privilege to require the
indemnifier to put in a position to meet the claim.

ANALYSIS
First British Decision was that repayment was payable solely after the indemnified
had experienced genuine misfortune by passing off the claim. The saying of Law
was: "You must be damnified before you can claim to be indemnified". This
anyway results in discomfort to the indemnity holder. In our country, no particular
provision is there which tells about when an agreement of indemnity is
enforceable. There have been clashes in legal decisions all through.

Osman Jamal's case was among the principal Indian cases, where the privilege to
be indemnified prior to paying was perceived. In this situation Calcutta High Court
had an open door to rethink the English regulation. Calcutta High Court
propounded new standard as-"You did not need to be damnify before you claim for
indemnify", and today the situation is not the same after the agreement of sorts has
been framed between various High Courts in different cases, and it was concluded
that the indemnity holder may urge the indemnifier to put him in a situation to
meet obligation that might be cast upon him without delaying until the promisee
has really released it.

1 ShiamLal v. Abdul Salam, AIR 1931 All 754 (India).

2 Ramalingathudayar v. UnnamalaiAchi, (1915) 38 Madras 791 (India).
3 Chunibhai Patel v. Natha Bhai Patel, AIR 1944 Pat 185 ( India).
The course of Transformation is all around clarified by Chagla J, of the Bombay
High Court in another renowned case4
“It is true that under English common law no action could be maintained until the
actual loss had been incurred. It was very soon realised that an indemnity might
be worth very little indeed if the indemnified could not enforce his indemnity till he
had actually paid the loss. If a suit was filed against him he had actually to wait
till a judgement was pronounced and it was only after he had satisfied the
judgement that he could sue on his indemnity. It is clear that this might under
certain circumstances throw an intolerable burden upon the indemnity holder. He
might not be in a position to satisfy the judgement and yet he could not avail
himself of his indemnity till he had done so. Therefore, the court of equity stepped
in and mitigated the rigour of the common law. The court of equity held that if his
liability had become absolute then he was entitled either to get the indemnifier to
pay off the claim or to pay into court sufficient money which would constitute a
fund for paying off the claim whenever it was made”.

CONCLUSION
The decision of the High Court of Calcutta in the case of Osman Jamal was
correct, because there is no particular arrangement that says when a contract of
indemnity is enforceable. There have been clashes in legal decisions all through.
First British decision was that the repayment was payable solely after the
indemnified had experienced genuine misfortune by passing off the claim. This
case lays out a rule to support indemnity holders, as without explicit arrangement
they were dealing with such countless issues. Anyway the contrary views have

4 Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR 1942 Bom.302, 304 (India).
likewise been expressed5 that reimbursement was payable solely after the
indemnity holder had experienced genuine misfortune by passing off the claim.

Bank Of Bihar Ltd. Vs. Damodar Prasad & Anr.

CITATION - 1969 AIR 297, 1969 SCR (1) 620

FACTS
The apex court was hearing the appeal against the Patna High Court's order and
verdict under its civil appellate jurisdiction. On the basis of a guarantee issued by
defendant no.2 (Damodar Prasad), the plaintiff bank lent a specified sum to
defendant no.1 (Damodar Prasad) (Paras Nath Sinha). Despite the plaintiff's
repeated demands, neither the major debtor (defendant no.1) nor the surety
(defendant no.2) returned the amount and interest. The surety committed to pay
and repay the principal debtor's liabilities up to Rs. 12,000/, plus interest, two days
following demand. The plaintiff would be free to enforce and recover on the
guarantee regardless of any other guarantee security or remedy that the Bank might
hold or be entitled to in respect of the amount secured, according to the bond. The
plaintiff bank has filed a lawsuit for the full sum. The trial court granted it a
decree, but stated that "plaintiff bank shall be at liberty to enforce its dues in
question against defendant No. 2 only after having exhausted its remedies against
defendant No. 1," prompting the plaintiff to file an appeal with the Patna High
Court, challenging the direction as being in violation of s.128 of the Indian
Contract Act, 1872. The same, however, was disregarded.
5 Shankar Nimbaji v. LaxmanSapdu, AIR 1940 Bom.161: 42 Bom LR 175 (INDIA).
ISSUE
Is the creditor required to exhaust his remedies against the principal debtor before
suing the surety for the recoverable amount, and can the court make such a
condition a part of the decree?

JUDGEMENT
Hon’ble Supreme held that it is not stated how and when the creditor would
exhaust his remedies against the principal. Is the creditor to ask for imprisonment
of the principal ? Is he bound to discover at his peril all the properties of the
principal and sell them; and if he cannot, does he lose his remedy against the surety
? Has he to file an insolvency petition against the principal ? The Trial Court gave
no reasons for this extraordinary direction. The Court rejected the prayer of the
principal debtor for payment of the decretal amount in instalments as there was no
evidence to show that he could not pay the decretal amount in one lump sum. It is
therefore said that the principal was solvent. But the solvency of the principal is
not a sufficient ground for restraining execution of the decree against the surety. It
is the duty of the surety to pay the decretal amount. On such payment he will be
subrogated to the rights of the creditor under sec. 140 of the Indian Contract Act.
and he may then recover the amount from the principal. The very object of the
guarantee is defeated if the creditor is asked to postpone his remedies against the
surety. In the present case the creditor is a banking company. A guarantee is a
collateral security usually taken by a banker. The security will become useless if
his rights against the surety can be so easily cut down. The impugned direction
cannot be justified under O. XX r. 11 (1). Assuming that apart from XX r. 11 ( 1 )
the Court had the inherent power under s.151 to direct postponement of execution
of the decree, the ends of justice did not require such postponement. In the result,
the appeal is allowed

ANALYSIS
While taking the case in various levelled term we see that the preliminary court of
Patna has taken a very unclear proportion while giving the judgement in spite of
the fact that they conveyed the judgement in the favour of the plaintiff i.e. Bank of
Bihar limited however the heading in the judgement of debilitating the cure first by
the Principal Debtor and afterward move to the Surety was truly questionable on
the grounds that the heading was exceptionally in opposition to the arrangements
in light of the fact that in section 128 of the Indian Contract Act, 1872 it was
plainly referenced that the obligation of the Surety is co-broad in nature and the
surety perform same risk as it was performed by the principal debtor in the details
of the recuperation of the sum acquired by the creditor, Although there is a cutoff
in the guarantee which was taken by the guarantor, this relied on the fact, sum and
conditions of the loan and on the off chance that he has fixed the sum, he won't
caused more than that sum. The trial Court had not taken appropriate consideration
of the results of the judgement they were making also the direction provided
thereafter because this direction has encroached the goal of the contract of
guarantee and Right of subrogation gave there at Section-140 of Indian Contract
Act, 1872 since, in such a case that the Creditor first exhaust his cure against the
Principal Debtor then, at that point, objective to save the Amount of the Creditor is
futile and it will make the guarantee exceptionally aloof towards the risk and this
bearing will permit the Surety to bring the order request effectively for
recuperation of cash by the Creditor.
The high court showed no interest in the judgement and simply upheld the trial
court's position and proposition; they didn't even go into the merits of the case,
demonstrating how unconcerned the judiciary is about the interpretation of the
lower court's provisions, laws, and judgments, as well as the litigant's and parties'
interests.
The view of The Supreme Court - The Supreme Court has taken a strong interest
in the interpretation of this case, as well as the laws and precedent involved. The
duty of liability and performance pursuant to the undertaking stated in the bond is
the only instrument to enforce the liability of the Principal Debtor and Guarantor,
according to the Supreme Court. The fact that neither the Principal debtor nor the
Surety had responded to their demand for performance of liability was obvious
from the case facts and the parol evidences presented before the court. The
Supreme Court stated that the Surety's liability was immediate and not
consequential, and that their rights and liabilities were secondary in terms of duties
rather than rights and liabilities. The Supreme Court has heavily criticised the trial
court's heading because it obstructs the creditor's goal of preventing debt, and it has
also stated that it is the responsibility of the Surety to look after the Creditor's
instruments and money and ensure that they are returned to the Creditor on time
and in a proper manner. The right of subrogation was created to protect the surety's
interest, and if the remedy is exhausted first against the principal debtor, what is
the scope of the guarantee bond? If the creditor suffers so much in getting claim of
his money by first suing the principal debtor and then the Surety, it will create a
long struggle for the creditor to get his own money, and this will create a pendency
of suits regarding this provision, which is very open and shrouded in uncertainty.
To avoid this, the supreme court decided that the creditor will be free to claim his
debt from either the surety or the principle debtor for the entire amount owed, and
that when the principal debtor defaults, the surety will be required to incur the
amount owed to the principal debtor, giving the surety subrogation and security
rights over the principal debtor's instruments.