Point of Law: Contract of Guarantee, unlike a contract of indemnity, which is bilateral, is a tri-party where three persons viz., the principal debtor, the creditor and surety are involved.

ORDER :

This civil revision petition is arising out of the orders dated 07.06.2013 in E.P.No.170 of 2012 in O.S.No.1332 of 2005 on the file of VII Senior Civil Judge, City Civil Court, Hyderabad.

2. The revision petitioners are the sureties for the principal borrower and are arrayed as judgment-debtors 3 and 6 in the execution petition.

3. The plaintiff is M/s.Suman Chitfunds Pvt. Ltd., represented by its Director. A suit was filed by the plaintiff for recovery of an amount of Rs.2,70,604/- with interest @ 12% per annum from the date of filing of suit till realization, against defendants 1 to 6. The trial Court has passed a decree directing that defendants 1 to 6 shall jointly and severally pay to the plaintiff a sum of Rs.2,70,604/- with interest @ 12% per annum from the date of the suit till the date of decree and thereafter @ 6% per annum till the date of realization on the principal amount of Rs.2,37,494.75 ps., and further directed to pay a sum of Rs.11,052/- towards costs of the suit.

4. Pursuant to the said decree, the plaintiff has filed the execution petition under Order 21 Rules 43, 64 and 66 of CPC to attach and sell the petition schedule properties of judgment debtors 1 to 3 and 6, for realization of the decretal amount. The revision petitioners i.e. Judgment-Debtor Nos.3 and 6 filed their detailed counters before the trial Court contending that they were not aware of the decree till they received notices in the execution petition and that the decree holder obtained ex parte decree behind their back. Ultimately, the execution petition was allowed by the trial Court ordering attachment against the revision petitioners herein i.e. Judgment-Debtor Nos.3 and 6.

5. Heard learned counsel for both the parties and perused the record.

6. It is urged by the learned counsel for the revision petitioners that the suit itself is not maintainable as per A.P.Chit Funds Act, 1971, and therefore, the decree is also not executable. It is further urged by the learned counsel for the revision petitioners that without recovering the money from the principal debtor, court cannot pass attachment order for attaching the properties of the guarantors, which is bad in the eye of law. In support of this contention, he placed reliance on the judgment of High Court of Andhra Pradesh in M.A.Raoof v. Vishnu Chit Funds Pvt. Ltd., 2015 (5) ALT 114 (S.B), wherein, their Lordships have held that the transaction is mainly between the Chit Fund Company on one hand and the prized subscriber on the other hand, it is incidental that the sureties are offered on the prized money being paid. Independent of that, the Chit Fund Company has its own documentation, vis-à-vis the subscriber. In a case the Chit Fund Company is not able to recover the amount from the prized subscriber, it can certainly proceed against its sureties. However, the freedom to proceed against sureties, without touching the prized subscriber is prone to be misused, leading to collusion to defraud otherwise innocent person, who offered himself as surety. Further, it is only when the prized subscriber is also added as party in the surety, that the surety against whom the decree holder intends to proceed would be in a position to plead and prove the payments or adjustments, if any. In contrast, in a given case, a Chit Fund Company may receive part of or whole of the decretal amount from a subscriber, and taking advantage of the fact that the satisfaction of the decree is not recorded, he may proceed to recover amount from the sureties. Several complications of this nature may arise, if a Chit Fund Company is permitted to proceed against the surety alone in execution.

7. In the present case i.e. in E.P.No.170 of 2012, the principal borrower i.e. prized subscriber was also made as a party along with the guarantors. In the law of indemnity, it is a tri-party agreement and the law permits the decree holder to proceed with the execution either against the principal borrower or against the guarantors.

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