Case: New India Assurance Company Limited Vs. Kusumanchi Kameshwara Rao &amp; Another

2. The plaintiff filed a suit for recovery of Rs. 1, 25, 000 against both the defendants in the Court of Subordinate Judge, Kakinada, East Godavari District in the State of Andhra Pradesh. The plaintiffs case is that by a Deed dated 23-4-1971 (Annexure A-2) entered into between the plaintiff and Defendant 2, the 2nd defendant agreed and undertook to pay to the plaintiff a sum of Rs. 1, 68, 499.32 being the amount settled to be due to the plaintiff. The 2nd defendant also agreed to furnish a guarantee bond from the 1st defendant-insurance company for the due payment of Rs. 1, 25, 000 from out of the said amount of Rs. 1, 68, 499.32. Accordingly at the request of the 2nd defendant, the 1st defendant agreed to execute a guarantee bond in favour of the plaintiff for the said amount of Rs. 1, 25, 000. The 1st defendant executed a guarantee bond dated 26-4-1971 (Annexure A-1) in favour of the plaintiff by and under which the 1st defendant agreed and undertook to pay to the plaintiff at Kakinada the said sum of Rs. 1, 25, 000 or such lesser amount as may be demanded by the plaintiff on failure of the 2nd defendant to fulfil the terms of the agreement dated 23-4-1971 (Annexure A-2). It is the further case of the plaintiff that the first defendant also unconditionally and irrevocably agreed that the payment due under the guarantee bond, will be made to the plaintiff within ten days after the receipt of a written notice of demand from the plaintiff and without reference to the 2nd defendant. The plaintiff contended that the said guarantee bond provided that it will be valid for a period of one year thereof. The plaintiff contended that as the 2nd defendant failed to perform the terms of the agreement (Annexure A-2) the plaintiff demanded the guaranteed amount of Rs. 1, 25, 000 from the 1st defendant by registered notice dated 27-3-1972. As it was not complied with, the plaintiff filed the aforesaid suit against both theThe 2nd defendant remained ex parte and did not file any written statement. But the 1st defendant-insurance company, appellant herein, filed written statement contending that it was not aware of any agreement dated 23-4-1971 (Annexure A-2) said to have been entered into between the plaintiff and the 2nd defendant under which the 2nd defendant agreed and undertook to pay to the plaintiff a sum of Rs. 1, 68, 499.32 as being the amount settled to be due to the plaintiff. The plaintiff and the 2nd defendant represented that the plaintiff was a wholesaler for the sale of nylon yarn and fishing requisites and that he appointed the 2nd defendant as a dealer for the sale of nylon yarn and the fishing requisites and that in connection with credit facilities that were being given by the plaintiff to the 2nd defendant the 1st defendant might give a guarantee for the said sum of Rs. 1, 25, 000 in respect of the faithful performance of the said dealership. Based on the said representations of the plaintiff and the 2nd defendant, the 1st defendant executed a guarantee bond in favour of the plaintiff in a sum of Rs. 1, 25, 000 for the sale of nylon yarn and fishing requisites etc. The 1st defendant never agreed to furnish any guarantee to the plaintiff in respect of any amount that had been settled to be due to the plaintiff on dissolution of their partnership. The allegation that the 2nd defendant agreed to furnish an insurance guarantee bond for the due amount of Rs. 1, 25, 000 from out of Rs. 1, 68, 499.32 from the 1st defendant and at the request of the 2nd defendant the 1st defendant agreed to execute a guarantee bond in favour of the plaintiff for the said sum of Rs. 1, 25, 000 was therefore not true. The 1st defendant executed a guarantee bond in favour of the plaintiff for a sum of Rs. 1, 25, 000 in case the 2nd defendant does not account to the plaintiff in respect of the sale of nylon yarn and the fishing requisites etc. that have been entrusted to him by the plaintiff to be sold. The allegation that the 1st defendant executed a guarantee bond under which it agreed to pay Rs. 1, 25, 000 to the plaintiff at Kakinada or such lesser amount as may be demanded by the plaintiff on failure of the 2nd defendant was notIn view of the aforesaid stand taken by the appellant-Defendant 1-insurance company the learned trial Judge framed relevant issues and came to the conclusion that the plaintiffs claim could succeed only against Defendant 2 who had not contested the suit, but so far as Defendant 1, the appellant herein, was concerned as it had not executed any guarantee in favour of the plaintiff in connection with the agreement or Dissolution Deed dated 23-4-1971 Annexure A-2, the suit was liable to fail against Defendant 1-insurance company. The plaintiff carried the matter in appeal and by the impugned judgment a Division Bench of the High Court took the view that in substance the surety bond Annexure A-1 sought to cover the liability undertaken by Defendant 2 in favour of the plaintiff by the Dissolution Deed dated 23-4-1971 and as that liability was not discharged by Defendant 2 the plaintiff was entitled to decree also against Defendant l-the guarantor insurance company and accordingly decreed the suit also against Defendant 1. As noted above the said decree against Defendant 1 has resulted in this appeal by the said Defendant 1-insurance company

Court's reasoning:
In any case as there was no allegation in the notice itself connecting it with the liability of Defendant 2 flowing from the Dissolution Deed Annexure A-2 there was no occasion for the appellant to deny its obligation as a surety qua such a liability. Similarly Annexure B-1, a guarantee bond executed by Defendant 2 in favour of Defendant 1 on which reliance was placed by the learned advocate for the plaintiff also is of no avail to enable the plaintiff to get out of the express terms of surety bond Annexure A-1. As discussed above it is found that the appellant-insurance company or its predecessor had not given any guarantee to cover the liability of Defendant 2 to the extent of Rs. 1, 25, 000 flowing from Dissolution Deed Annexure A-2. The guarantee given was for entirely a different transaction, that is for securing the payment of unpaid price of goods to be sold on credit by the plaintiff to dealer Defendant 2 over a course of period and the guarantee was to continue for such future period up to one year. It is not the case of the plaintiff that Defendant 2 had during that period failed to pay purchase price of the goods, namely, nylon yarn and fishing requisites. Nor has the plaintiff invoked suretyship agreement in that connection. The suit is based on entirely a different alleged guarantee said to have been given by the insurance company to cover the liability of Defendant 2 flowing from the Dissolution Deed. For such an obligation of a Defendant 2 flowing from Annexure A-2 there is no contract of guarantee at all given by Defendant 1. In short on the basis of the surety bond Annexure A-1 no liability can be foisted on the appellant to meet the obligation of Defendant 2 flowing from the Dissolution Deed Annexure A-2. As the saying goes mulo nasti kut shakha i.e., if there is no root where is the question of having branches. Consequently it is not possible to agree with the finding of the High Court as recorded at page 37 of the impugned judgment to the effect that the agreement mentioned in para 1 of Ex. A-1 has reference to Ex. A-2 agreement executed between the 2nd defendant and the plaintiff and that the parties understood the Dissolution Deed Ex. A-2 dated 23-4-1971 as being in the nature of sale of nylon yarn and fishing requisites in favour of Defendant 2 represented by G. Subbarao, the other partner. This finding flies in the face of theexpress terms of the guarantee bond Annexure A-1 and with respect amounts to rewriting the guarantee bond itself. Such a new guarantee bond cannot be culled out from the language of Annexure A-1. Such an exercise is totally impermissible on the facts and circumstances of the case