Smt. Kamala Devi vs Seth Takhatmal And Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 72 of 1961

Decision Date: 21 February 1963

Coram: Raghubar Dayal, J.R. Mudholkar, Subba Rao

In this matter, the Supreme Court of India rendered its judgment on 21 February 1963. The parties were Smt Kamala Devi as petitioner and Seth Takhatmal together with another person as respondents. The bench hearing the appeal consisted of Justice Subbarao K, Justice Dayal Raghubar and Justice J R Mudholkar. The decision is reported in the 1964 volumes of the All India Reporter at page 859 and in the 1964 Supreme Court Reports (Second Series) at page 152. The case primarily concerned the construction of a surety bond, the conditions required for its enforcement, and the operation of the Displaced Persons’ Debt Adjustment Act 1951 in relation to civil‑court execution proceedings under Section 145 of the Code of Civil Procedure, 1908, and Sections 5 and 15 of the 1951 Act.

The factual background was that a plaintiff, identified as T, instituted a suit against a defendant, M, and obtained an attachment order against certain bills that were due to M. The attachment was later released when M furnished sureties, among them the appellant, Smt Kamala Devi. Under the terms of the surety bond, the appellant promised that M would, when required by the court, produce the bills or their monetary equivalent, and that in the event of M’s default the appellant would pay a sum of Rs 12,000 to the court. After a decree was passed in favour of T, T sought to enforce the decree by invoking the surety bonds, while the sureties raised objections. Subsequently, M applied to the Dehradun Tribunal under Section 5 of the Displaced Persons’ Debt Adjustment Act, 1951, seeking adjustment of his debts. The appellant, relying on Section 15 of the same Act, applied to the executing civil court for a stay of the enforcement proceedings. The civil court declined to stay the execution, holding that the Dehradun Tribunal lacked jurisdiction to entertain M’s application and consequently refusing the appellant’s objections to the bond enforcement. The Tribunal later affirmed its lack of territorial jurisdiction and returned the application for referral to the appropriate tribunal, after which M appealed the Tribunal’s order. The appellant maintained that the civil court was obligated to stay the execution and that the bond could not be enforced because its stipulated conditions had not been satisfied. The Court held that the civil court was correct in refusing the stay. It explained that Section 15 of the 1951 Act obliges a civil court to stay all pending proceedings only when two conditions are fulfilled: first, the tribunal before which the Section 5 application is filed must possess territorial jurisdiction to hear the matter; second, the proceedings must relate to a debt owed by the displaced person. Because the Tribunal had returned M’s application on the ground of lacking territorial jurisdiction, no Section 5 application remained pending, and the filing of M’s appeal did not suspend the Tribunal’s order. Consequently, the required conditions for a statutory stay were not met, and the execution of the decree could proceed. The Court also referred to the precedent set in Juscur Bod v. Kirthichand Lal (1918) L.R. 46 I.A. 52 in support of its reasoning.

The Court observed that a surety bond had to be given a strict construction and that the surrounding circumstances could be considered only when the language of the bond was ambiguous. In the present case the language of the bond was clear, and a strict construction led to the conclusion that two conditions were essential for the bond to be enforced against the surety. First, the Court had to make a demand on the principal debtor, identified as M, to produce the bills or their monetary value. Second, the principal debtor had to be in default in complying with that demand. The Court found that neither of these conditions had been satisfied, and therefore the surety bond could not be enforced. The judgment cited the authorities Raghunandan v. Kirtyanand, A.I.R. 1932 P.C. 131; The State of Bihar v. M. Homi, [1935] 2 S.C.R. 78; and The State of Uttar Pradesh v. Mohammad Syeed, [1957] S.C.R. 770 in support of this reasoning. The appeal was filed under Civil Appeal No. 72 of 1961, seeking special leave from the judgment and order dated 12 March 1957 of the Madhya Pradesh High Court recorded in Letters Patent No. 212 of 1956. Counsel for the appellant was G.C. Mathur, while counsel for respondent No. 1 comprised the Additional Solicitor‑General of India, H.N. Sanyal, and S.S. Shakla. The judgment was delivered on 21 February 1963 by Justice Subba Rao. The appeal raised, among other matters, the issue of how the terms of a surety bond should be construed. The material facts were as follows: on 26 August 1947, Seth Takhatmal, the first respondent, instituted Civil Suit No. 9‑A of 1947 before the First Additional District Judge, Jabalpur, against Mulkraj Malhotra, the second respondent, seeking dissolution of their partnership and an account of money. On the next day, 27 August 1947, the first respondent applied for attachment before judgment of all bills payable to “M. R. Malhotra and Company” as described in Schedule A, and also sought an order directing C.M.A.S.C., Poona, to refrain from issuing any cheque payable to that company. The Court issued notice of this application on the same day. On 28 August 1947, the Court ordered a conditional attachment before judgment of the identified bills. The second respondent applied on 9 September 1947 for vacating the attachment order and, on 11 September 1947, offered to give security if time were granted. Subsequently, on 17 October 1947, five surety bonds were executed by the appellant and four other persons for various amounts and were presented to the Court, which accepted the bonds and withdrew the attachment order. The appellant’s surety bond was for the sum of Rs 12,000 and provided that, if the second respondent defaulted in producing and placing at the Court’s disposal, when required, the properties specified in the attached schedule or their value sufficient to satisfy the decree, the surety would be liable to pay the Court an amount not exceeding Rs 12,000. A preliminary decree in the suit was rendered on 13 October 1948.

On the first day of August in the year 1951, the High Court at Calcutta pronounced the second respondent to be an insolvent. Subsequently, on the twentieth day of September, 1951, the court issued a final decree in the pending suit, directing the second respondent to pay a principal sum of Rs 1,74,906/4/0 together with costs amounting to Rs 7,868/10/0. Following the decree, the first respondent, on the nineteenth day of October, 1951, submitted an application seeking execution of the decree by invoking the surety bonds that had been furnished under section 145 of the Code of Civil Procedure. The appellant, on the seventh day of December, 1951, entered objections to that application, raising a number of pleas, inter alia, alleging that the decree had been rendered without jurisdiction and that the surety bond upon which execution was sought was void. Thereafter, on the twenty‑eighth day of May, 1952, the second respondent filed an application under section 5 of the Displaced Persons (Debts Adjustment) Act, 1951 (referred to as the Act) before the Tribunal situated at Dehra Dun, requesting adjustment of his debts under the statutory scheme. The adjudication of the second respondent as an insolvent, which had been made earlier, was set aside on the ninth day of July, 1952. The appellant then, on the second day of August, 1952, moved the District Court under section 15 of the Act, praying for a stay of the execution proceedings and for the transfer of all the case records to the Dehra Dun Tribunal. The tribunal, on the twentieth day of August, 1956, concluded that it lacked territorial jurisdiction to entertain the second respondent’s application under the Act and consequently returned the matter for presentation to a proper tribunal. Meanwhile, on the twenty‑second day of August, 1952, the executing court dismissed all of the appellant’s contentions. The second respondent, on the twenty‑ninth day of August, 1956, appealed against the tribunal’s order that had returned his application under section 5 of the Act; according to the counsel appearing for him, that appeal was thereafter dismissed. The appellant thereafter preferred Miscellaneous First Appeal No. 44 of 1952 before the High Court of Judicature at Nagpur challenging the executing court’s order that had rejected her objections; the High Court, by an order dated the first day of October, 1956, dismissed that appeal. Further, the appellant filed a Letters Patent Appeal No. 212 of 1956 against the order of the single judge of the High Court; a Division Bench of the same High Court dismissed that appeal on the twelfth day of March, 1957. The present appeal therefore stands before this Court, having been filed by the appellant on a special leave of the Court.

The counsel appearing for the appellant, identified as Mr Mathur, advanced two principal points for consideration. First, it was contended that the executing court acted without jurisdiction when it refused to stay the execution proceedings against the appellant, a refusal that allegedly contravened the explicit provisions of section 15 of the Act. Second, the counsel submitted that the surety bond required for enforcement must be interpreted strictly, and that, when read in that strict manner, the bond’s express terms demonstrated that the conditions necessary for its enforceability had not been satisfied. The Court indicated that it would examine, at the appropriate stage of the judgment, the submissions presented by the learned Additional Solicitor‑General on behalf of the first respondent. The primary issue for determination, as framed by the Court, concerned the application and interpretation of the relevant provisions of the Act.

In this case the Court examined the relevant statutory provisions of the Act. Section 5(1) provided that, within one year after the Act became operative in any local area, a displaced debtor could apply to the Tribunal that had jurisdiction over the area where the debtor actually and voluntarily lived, conducted business, or worked for gain, for adjustment of his debts. Section 15 stipulated the effect of such an application. It stated that when a displaced debtor filed an application under Section 5 or under sub‑section (2) of Section 11, all civil court proceedings pending on the date of that application concerning any debt owed by the displaced debtor—except proceedings that were appeals, reviews, or revisions of decrees or orders against the debtor—were to be stayed. Moreover, the records of those stayed proceedings, other than the ones relating to appeals, reviews or revisions, were to be transferred to the Tribunal and consolidated. Consequently, if a displaced debtor lodged an application before a Tribunal described in Section 5, every civil court proceeding pending on that date with respect to any debt owed by the debtor was to be stayed. The statutory stay, however, could arise only when two conditions were satisfied. First, the Tribunal before which the application under Section 5 was filed had to be situated within the local limits of the jurisdiction in which the debtor actually and voluntarily resided, carried on business, or worked for gain; in other words, the Tribunal needed to possess the requisite territorial jurisdiction to entertain the application. Second, the civil proceedings had to relate to a debt owed by that displaced debtor. The factual record showed that the Dehra Dun Tribunal had determined that it lacked territorial jurisdiction to entertain the petition and consequently returned the petition for representation before a proper Tribunal. That returned application was never presented before any appropriate Tribunal, and the appeal filed against the Tribunal’s order was dismissed. Because there was no pending application before any Tribunal, the Court was correctly within its authority to refrain from invoking Section 15 of the Act. Counsel for the appellant argued that he had not received instructions indicating that the appeal filed in the Allahabad High Court had been dismissed. Assuming, for argument’s sake, that the appeal remained pending against the order of the Dehra Dun Tribunal, which had returned the second respondent’s petition under Section 5, the appellant would not have been placed in any better position. The record did not show that, after filing the appeal, the appellant obtained any interim suspension of the Tribunal’s order; indeed, it was undisputed that no such order existed. Accordingly, the legal position would have been that the Tribunal’s order remained in force until it was altered or set aside by the appellate Court.

In this case the Court observed that a decree or order issued by a Tribunal remained effective until it was either altered or annulled by the appellate court. The mere institution of an appeal did not, by itself, halt the operation of the contested order. Such a suspension could occur only if the appellate court expressly stayed the order or if a statutory provision that created a right of appeal also contained a provision for a stay. Section 40 of the governing Act indeed granted an aggrieved party the right to appeal a final Tribunal order to the High Court, but the section did not incorporate any automatic stay of the Tribunal’s order pending the disposal of the appeal. The Court further pointed to Order XLI, rule 5, of the Code of Civil Procedure, which articulates the well‑known principle that an appeal does not operate as a stay of proceedings under a decree or order unless the appellate court specifically orders such a stay. The Court emphasized that the principle governing stays of proceedings necessarily applies with even greater force to the suspension of a Tribunal order.

The Court then referred to the judgment of the Judicial Committee in Juscur Bai v Kirthichand Lal, which summarized Indian procedural law by stating that, under Indian law, the filing of an appeal does not suspend the original decree, and the operation of a decree of dismissal is not interrupted by the appeal. Applying that principle, the Court noted that the application filed by the second respondent before the Dehra Dun Tribunal had been dismissed, and the Tribunal’s order therefore continued to govern the matter until it might be reversed by an appellate court. Because the Tribunal’s order was not stayed, there was, in effect, no pending application before any Tribunal as contemplated by section 5 of the Act. Accordingly, the Court concluded that the High Court’s decision on this point was correct.

The second issue before the Court concerned the construction of a surety bond executed by the appellant. The bond, reported in (1918) L.R. 46 I.A. 52, 56, was examined because the dispute turned on its terms. The Court read the operative portion of the bond aloud. The bond stated that, at the instance of Takhatmal, the plaintiff in the suit, the defendant Mr Mulkraj had been ordered by the Court to provide security of one lakh rupees in order to produce and place at the Court’s disposal the property listed in the annexed schedule. The bond further declared that Kamla Devi, of her own volition, became surety and bound herself, her heirs and executors, to the Court that the defendant would, when required, produce and place at the Court’s disposal the specified property or its value, or such part thereof as would be sufficient to satisfy the decree. The bond additionally provided that, in the event of the defendant’s default in complying with that requirement, the surety bound herself, her heirs and executors, to pay the Court, as directed, the sum of twelve thousand rupees or a lesser amount not exceeding that figure.

The document indicated that the sum to be paid was the amount that the Court might adjudge, and it referred to Schedule “A”, which listed two items and gave an approximate grand total of Rs 1,10,000/‑. Learned counsel for the appellant argued that the surety bond must be read in a strict manner. He said that, according to the wording of the bond, the surety’s liability could arise only after the principal debtor had been required by the Court to produce and place at the Court’s disposal the specified bills or their monetary value, and only if the principal debtor subsequently defaulted in complying with that requirement. He further maintained that, in the present case, no evidence had been shown to establish that any such demand had been made on the second respondent, nor that the second respondent had failed to comply with such a demand. Consequently, the appellant’s position, in his view, lacked any factual basis.

Learned Additional Solicitor‑General, representing the first respondent, opposed the appellant’s reliance on this plea. He contended that the appellant had not raised the issue earlier and therefore should not be permitted to introduce it at this stage of the proceedings. He explained that, had the issue been raised in the pleadings, the respondent would have been in a position to claim and demonstrate that the condition described in the bond had either been satisfied or, at the very least, waived by the appellant. He further asserted that a proper reading of the bond’s terms, when viewed in the context of the circumstances surrounding its execution, would clearly show that the appellant had undertaken the responsibility to satisfy the decree debt up to a maximum of Rs 12,000/‑ in the event that the second respondent failed to do so.

According to the Additional Solicitor‑General, because the surety bond was executed for the purpose of obtaining an attachment, the amount stipulated in the bond was intended to be applied to the decree amount if the judgment‑debtor defaulted in delivering the bills or their value to the Court. He argued that, under those circumstances, a reasonable interpretation of the bond’s language—without distorting its terms—would reveal this intention. He acknowledged that the plea in question had not been specifically raised in the appellant’s objections, nor had it been presented before the learned District Judge. The plea had been dismissed by Kotval J. on the ground that it was not pleaded, and the Division Bench had also rejected it on its merits.

The Court noted that the matter concerned the construction of a surety bond, and therefore any facts upon which the respondent relied must be found in the order sheet. The Court explained that, if a demand had been made on the judgment‑debtor or if either the judgment‑debtor or the surety had waived the condition, the order sheet would have to record the notice of demand or the facts showing the waiver. The Court emphasized that no facts can exist outside the official record, and that the entire order sheet was present in the file. The learned counsel was unable to point to any entry in the order sheet that would substantiate a demand having been made or a waiver having occurred. In view of these circumstances, the Court observed that even if the matter were remanded, the lack of any useful entry in the record would render such remand ineffective.

In this case the Court noted that the only source from which the necessary facts could be obtained was the order sheet. Before the Division Bench of the High Court the first respondent did not assert that he possessed any material other than the order sheet to demonstrate that a demand had been made or that the surety had waived the condition. Moreover, the respondent’s counsel argued that, given the events that subsequently occurred, any such demand would have been merely a formal exercise without real effect. The Court therefore concluded that allowing the appellant to argue the construction of the surety bond, as she had done in the lower courts, would not prejudice the respondent. Turning to the construction of the surety bond, the learned Additional Solicitor‑General raised the first issue that the terms of the bond must be interpreted in light of the surrounding circumstances, that is, the circumstances prevailing at the time the bond was executed. To support this position, counsel relied upon the decision of the Judicial Committee in Raghunandan v. Kirtyanand (1). In that case the Committee was called upon to interpret a surety bond and to determine whether the surety’s liability extended to the entire decree amount or only to the balance remaining after the mortgage security had been realized, subject to the limit guaranteed by the bond. The Committee observed that the language of the document was not clear and unambiguous. In those circumstances Lord Tomlin, delivering the opinion for the Board, stated: “The bond must be considered in the light of the order directing the security to be given… what is the meaning of the language employed in the bond?” This observation applied the well‑settled rule of construction of documents to a surety bond. The Court further referred to Sections 94 to 98 of the Indian Evidence Act, which provide guidance on how documents should be construed and indicate the situations in which extrinsic evidence may be admitted for that purpose. Section 94 sets out the rule that when the language of a document is plain and accurately reflects the existing facts, the Court may admit evidence only to show that the language was not intended to apply to those facts. When a Court interprets a document, it first examines its language. If the language is clear, unambiguous, and corresponds precisely to the facts, the Court must give effect to its ordinary meaning. The Court’s duty is not to probe the hidden intentions of the mind but to ascertain the meaning expressed by the words themselves. At times, however, it is said that a Court should consider all the surrounding circumstances to determine an author’s intention.

In interpreting a document, the purpose of examining the language is solely to determine whether the words correspond accurately with the facts that exist. When the language is clear and the surrounding circumstances support that clarity, the Court is not permitted to read into the document an intention that contradicts the ordinary meaning of the words employed. The provisions that form the relevant group of sections address situations where the language is ambiguous, where expressions are peculiar, or where there is a mismatch between the written terms and the factual matrix. In the matter presently before the Court, the Court found that none of those circumstances of ambiguity or inconsistency were present, a point that will be shown in the discussion that follows. The case cited from the Privy Council involved an ambiguous document, and the Court in that case relied on the surrounding circumstances to uncover the true intention of the parties as expressed in the document. Keeping those principles in mind, the Court examined the surety bond closely. The pre‑amble of the surety bond, in unambiguous language, sets out the purpose of the bond. It states that “the defendant has been directed by the Court to furnish security in the sum of Rs. 1,00,000/- to produce and place at the disposal of the Court the property specified in the Schedule hereunto annexed.” Consequently, the purpose of the bond is to ensure that the Court’s direction is duly carried out and to provide a safeguard in the event that the judgment‑debtor fails to comply with that direction.

The second paragraph of the bond imposes a binding obligation on the surety, directing that the defendant shall, when required, produce and place at the Court’s disposal the property specified or its monetary equivalent. The wording in this portion of the surety’s undertaking is plain and unequivocal. It requires the judgment‑debtor to produce the bills or their value and to deliver them to the Court whenever the Court so demands. The phrase “when required” is to be understood as “when required by the Court.” Thus, the surety’s liability arises only after the Court issues a requisition for the property. In the present case, there is no order or entry on the order sheet that commands the judgment‑debtor to produce and place the property before the Court, nor does the execution petition, although it lists the judgment‑debtor in one of its columns, seek any relief against him. Counsel for the respondent argued that the words “when required” should be limited to situations where the bills could actually be produced or their value paid by the judgment‑debtor, noting that the bills had been cashed and the proceeds misappropriated, and that the judgment‑debtor had been declared insolvent, making any demand a mere formality. It was further submitted that the condition should apply only when the money could be lawfully paid by the judgment‑debtor; however, given the debtor’s status as an insolvent, the Court could not demand payment from him.

In that case the Court observed that the judgment‑debtor could neither pay the amount nor was he capable of doing so. The interpretation of the phrase “when required” proposed by the counsel for the respondent, if accepted, would render those words superfluous because it would imply that the judgment‑debtor should be required to produce the property only if he was able to do so, and that he need not be required when he could not. Under such an interpretation the words could be omitted from the sentence as they would serve no purpose. If the words were to be retained in order to accept the counsel’s argument, they would have to be qualified by the addition of “if the bills could be produced and when the money could lawfully be paid by the judgment‑debtor.” Those qualifying words were not present in the clause and could not be inserted, yet the Court held that the clause already conveyed its full meaning without them. The Court further held that any apparent ambiguity vanished because the expression “in default of his doing so” made it unmistakably clear that the surety’s liability arose only if the judgment‑debtor failed to produce the document when required. The parties’ intention, the Court found, was clear: the surety undertook that the judgment‑debtor would produce the bills if the Court demanded them, and that the surety would be bound to pay the decree amount up to a specified limit if the judgment‑debtor defaulted. The Court could not pre‑determine that the judgment‑debtor would refuse or be unable to produce the bills or their value, since he might have satisfied the amount from other sources, applied to the official Receiver, or, after the adjudication was annulled, could have paid the amount. The Court reiterated the settled principle that a surety bond must be strictly construed. It cited the decisions in The State of Bihar v. M. Homi, [1955] 2 S.C.R. 78, which held that penal provisions in a surety bond must be strictly interpreted, and The State of Uttar Pradesh v. Mohammed Sayeed, which applied the same strict rule of construction. Applying that strict construction to the present bond, the Court concluded that a demand on the judgment‑debtor and a subsequent default by him were essential conditions for enforcing the bond against the appellant. Consequently, the Court set aside the order of the High Court and dismissed the execution application filed by the first respondent against the appellant. However, the Court found that awarding costs to the appellant was not appropriate because she had not specifically raised this objection in her pleadings nor presented the contention before the district judge. In view of these circumstances, the Court directed each party to bear its own costs throughout.

The Court issued a clear direction that each party shall be responsible for the costs that it incurs during the proceedings. This direction required that the party who brings a claim, as well as the party who opposes it, must meet its own legal expenses. The allocation of costs was to apply at every stage of the litigation, from the filing of the application through any intermediate hearings and up to the final judgment. Accordingly, no party was to be ordered to pay the other's costs, and the responsibility for expenses remained with the party that actually incurred them. The Court emphasized that this rule of cost allocation was to be observed throughout the entire course of the case, without any deviation or alteration at any point. In effect, each litigant was to bear his or her own costs throughout the proceedings, ensuring that the financial burden did not shift from one side to the other at any stage.