Consent decrees are valid obligations under surety bonds, unless impacted by fraud or collusion.

1. Special Civil Suit No.3 of 1967 was filed by the respondent - firm for recovery of an amount of Rupees 22,717.12 and costs with interest at 12 per cent, per annum from the date of suit till recovery. The defendant put in contentions disputing the claim of the plaintiff. After filing the suit, an application for attachment before judgment under O.38, R.5 of the Civil Procedure Code was made by the plaintiff. The property was attached but the attachment was removed as the defendant furnished security in the shape of a surety bond executed by the present appellant agreeing to hold himself liable for the decree to be passed to the extent of Rs.25,000/-.

2. Subsequently on November 14, 1968 a consent decree was made by the trial Court for Rs.22,717.12, costs of the suit and interest at 12 per cent, per annum but subject to a condition that if payments were made as detailed in the terms of compromise, the decree was to be entered as satisfied provided the amount of Rs.20,000/- was paid. After this decree was made, the respondent firm made an application for execution and had the property of the appellant - surety attached on September 9, 1969. On October 8, 1969 the attached property was ordered to be sold for satisfaction of the decree. Against this order for sale, the appellant - surety filed the present appeal.

3. When this matter reached hearing before Vaidya, J., one point was placed before the learned Judge, namely that there is a conflict of decisions of two Division Benches of this Court. The learned Judge having found that the conflict exists referred this matter to a Division Bench. The point in respect of which a conflict was shown to exist was whether by reason of the fact that a decree by a compromise was made, the surety who had agreed to pay the decretal amount was discharged.

4. Mr. Dalvi appearing for the appellant contended that although in strict terms a surety bond executed in favour of the Court would not be covered by S.133 and S.135 of the Contract Act, still this Court has held that the principles embodied in S.133 and S.135 of the Indian Contract Act would apply. It was urged by him that the surety could not be expected to anticipate that the plaintiff and the defendant would settle the claim and that the defendant would submit to a decree shifting the liability from himself to the surety. The fact that the decree was by compromise was, according to Mr. Dalvi, a variation of the original terms of the surety bond and necessarily therefore if the principles of S.133 and S.135 of the Contract Act applied, the surety was entitled to contend that he was discharged.

5. In support of his contention that the principles embodied in S.133 and S.135 of the Indian Contract Act applied to the surety bond executed in favour of the Court, reliance was placed by Mr. Dalvi on Parvatibai v. Vinayak , 40 Bom LR 989 : (AIR 1939 Bom 23). The facts of this case were as follows: The defendant in the suit offered two sureties who executed bonds to the Court for securing the payment of mesne profits for two years. Against the decree made in the suit, an appeal was filed by the defendant. A stay of execution by offering fresh security was also obtained by the defendant - appellant. After the appeal was dismissed an execution was sough by the decree - holder for mesne profits against the original sureties. A contention was taken by sureties that they were discharged. Broomfleld, J., while considering this question observed that although having regard to the definitions In S.126 of the Indian Contract Act , S.133, S.135 and S.139 cannot apply in terms t