Radha Kanta Pal v. United Bank of India
AIR 1955 Cal 217
(Section 139 of Indian Contract Act, Discharge, Rights of a surety)
The case concerns a contract in the nature of a fidelity bond or a guarantee. A (deceased) executed a security bond in favour of a Bank, B, in consideration of the Bank employing N. Later N was found to be guilty of mismanaging a certain amount of money. Hence the bank wanted to enforce the bond and get the money. A’s heir (R), filed a suit against the bank claiming the security back as A had been discharged of his liability as the Bank had continued to employ N even after finding out the mismanagement without notice to him. R also denied any knowledge of the defalcation or breach of duty committed by N.
(A-Rajanikant Pal; N-Nishikant Pal, 2nd defendant; B-Comilla Banking Corporation & 1st defendant; R-Radhakant Pal, plaintiff & Rajanikant’s son)
Plaintiff: Since bank had continued to employ N even after finding out the mismanagement without notice to him, s.139 of ICA is applicable and they (R&A) are discharged from any liability.
Defendant (Bank): N is responsible for shortage of the Bank’s cash and the Bank is therefore entitled to deduct that money out of the security deposit.
(1) (Regarding facts)Was N actually responsible for the shortage of the sum as alleged by the bank? Did R have any knowledge of the aforesaid shortage?
(2) Is the bank entitled to claim that sum from N? If so, is it entitled to adjust the same from the security deposit and N’s provident fund?
(3) To what reliefs, if any, is R entitled?
HELD (Calcutta High Court, P.B. Mukharji, J.)
- Answered all the questions raised in the first issue & 1st part of the 2nd issue in AFFIRMATIVE.
- (w.r.t. s.139 of ICA) Section 139, cannot be maintained. In order to attract that section there must not only be either an act inconsistent with the rights of the surety or an omission to do an act which it is the creditor’s or employer’s duty to do but also the impairment of the eventual remedy of the surety against the principal debtors. Nothing in evidence showed that the plaintiff’s eventual remedy against the principal debtor N had in any way been impaired. The plaintiff, in his very action sued and was suing the defendant N. Therefore the plaintiff’s own act of suing the principal debtor in the suit itself goes against the plaintiff’s contention that his eventual remedy against the principal debtor is impaired.
- (w.r.t ‘bank continued to employ…’) Bank cannot dismiss its employee merely on suspicion or merely because some shortage in the cash of which he was in charge is reported without investigation. When N was found responsible under the investigation, the bank duly intimated this to the plaintiff.
- (w.r.t 3rd issue) R can recover from N but not from the Bank.
- The surety’s liability, for the faithful discharge by another, of his duties depends on the exact terms of that guarantee. The surety is not discharged from liability for the default of the person whose fidelity has been guaranteed, on the ground that the default would not have happened if the creditor had used all the powers of superintending the performance of the debtor’s duty, which he could have exercised, because the employer of that servant does not contract with the surety, that he will use utmost diligence in checking the servant’s work.
A contract of guarantee unlike a contract of insurance is not one of uberrimae fidei but a contract strictissima juris.
Section 139, Contract Act, says that if the creditor does any act which is inconsistent with the rights of the surety or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.
 These concluding word are the qualifying words which qualify the act or omission mentioned in this section.