top of page
  • Brain Booster Articles

CASE COMMENTARY ON M.S. ANIRUDHAN V. THOMCO’S BANK LTD.

Author: Sandra Jini Saju, V year of B.A.,LL.B. from Christ Academy Institute of Law Bengaluru.


Introduction

In law, a contract is a binding legal agreement that is enforceable in a court of law or by binding arbitration. A contract is an exchange of promises with a specific remedy for breach. Contract of guarantee can be of two types, it can be oral or written. However, for a contract to form in between the parties there should be meeting of minds that means all three parties should be privy to the contract. The three parties are: the person who gives the guarantee is called “surety”. The person of whose default the guarantee is given is called the “Principal debtor”. The person to whom the guarantee is given is called the creditor. Contract of guarantee is a promise to answer for the payment of the debt that the principal debtor takes from the creditor or the performance of some duty. In case the principal debtor fails who is in the first instance liable to pay or perform. Therefore, the primary liability to pay is of the principal debtor. Whereas, the secondary liability is of the Surety i.e. when the principal debtor fails to pay, the surety comes into role. Liability of surety is same as that of the principal debtor. A creditor can directly proceed against the surety. A creditor can sue the surety directly without suing principal debtor. Surety becomes liable to make payment immediately when the principal debtor makes default in such payment. However, primary liability to make payment is of the principal debtor, surety’s liability is secondary. Also, where the principal debtor cannot be held liable for any payment due to any defect in documents, then surety is also not responsible for such payment.


The section discussed in the case of M.S. Anirudhan v. Thomco's Bank is section 133 of Indian Contract Act, 1872. This section deals with the general rule that is all the parties should be privy to the contract. It stated that when an amendment or alteration takes place in the contract without taking consent of surety, the surety is discharged. Surety cannot be bound to something for which he has not contracted. Variation of contract between creditor and principal-this is a rule of long standing which means that if any variance is made in the agreement to which surety has signed and if it is made without the knowledge or consent of the and which may form into a new agreement even though the original agreement may, notwithstanding such variance then the surety will be discharged.


Exception of this Section: if the alteration is made in the agreement without the surety’s consent that is beneficial to the surety, the surety is not discharged. The alteration should be unsubstantial/immaterial, then surety is not discharged.

In M.S. Anirudhan v. Thomco's Bank case the appellant was standing surety for Sankaran who took Rs20,000 overdraft from Thomco's Bank whereas the appellant was not aware of the fact that Rs 25,000 was latter reduced to Rs 20,000 by the bank and Mr. Sankaran, but appellant and principle debtor Mr. Sankaran duly signed for the overdraft of Rs 25,000. By Civil Appellate Jurisdiction the case was brought to a 3 Judge bench at Supreme Court and the court referred to Halsbury’s Law of England found that it was beneficial for the appellant therefore, Apex Court dismissed the case and there is no order as to costs.


Importance of this case

Section 133 of Indian Contract Act deals with discharge of surety by variance in terms of contract which means that if any variance is made without the consent of the surety then the duty of surety discharges. M.S. Anirudhan v. Thomco’s Bank case brought an exception to the section that if a variation is not substantial or material, or is beneficial to the surety, then the surety will not be discharged. The Apex court looked into Halsbury’s Law of England if an alteration is made in deed and if that alteration is immaterial to the validity of the deed then it is not material which carries out the intention of the parties already apparent on the face of the deed. This was the first case arisen under the topic of guarantee although the question of material alteration had been dealt with earlier. Through this case it was found that by entrusting the letter of guarantee in the hands of principal debtor then principal debtor is considered to be act on behalf of surety.


Facts of the case

An appeal that has arisen out of a suit was filed by the Thomco's Bank Ltd., Thiruvananthapuram, (Bank) against V. Sankaran (the principal Debtor) and M. S. Anirudhan (the surety and appellant). M.S. Anirudhan has agreed to stand surety for an overdraft which was allowed by the Thomco's Bank to Sankaran the principle debtor of this suit. The bank had agreed to allow an overdraft of maximum Rs 25000/ which was duly signed by Sankaran and M.S. Anirudhan on 24 February 1947, which was later reduced by the bank to Rs.20,000 as the bank were not able to accommodate or not willing to give more than Rs20,000 to Sankaran. Sankaran then made alterations in the agreement from Rs25,000 to Rs 20,000. In a suit against Sankaran(principle debtor) and the surety M.S. Anirudhan for recovering the dues of Rs20000 overdraft, the appellant M.S. Anirudhan stated that he was not aware of the alterations made by the creditor and principle debtor and the document was altered without his consent or knowledge so he pleaded that he must be discharged from his liability.


Issues of the Case

  • Whether document i.e. contract of guarantee is void due to alteration made and does it discharge the surety of his liability?

  • Whether the alteration made by Sakaran in the letter of guarantee by reducing the amount of guarantee a material alteration?

  • Is the appellant, M.S. Anirudhan discharged because of such an alteration?


Law involved

The law involved in this case is of Section.133 of Indian Contract Act,1872. The section states as follows: -

“Discharge of surety by variance in terms of contract. Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. —Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.”


This section states that if all the parties should be privy to the contract. It stated that when an amendment or alterations takes place in the contract without taking the consent of surety, the surety is discharged. Surety cannot be bound to something for which he or she has not contracted.


Judgements

Trial Court

It was contended by the appellant Anirudhan in the trial court that he had furnished a guarantee of only Rs. 5000/- which was altered by the principal debtor Sankaran to Rs. 20000/- without his consent. However, this set of facts of alteration in the letter of guarantee as put forth by Anirudhan and the case made out of it was not accepted in the Trial Court. The Trial Court found that the original amount of guarantee was of Rs. 25000/- and was altered to Rs. 20000/- without the consent of the surety and also since no question about the material nature of the alteration was raised, the suit against the appellant was dismissed.


High Court

On appeal in the High Court of Kerala, it was found that there was no prior oral contract between the surety and the Bank. The contention of the Bank was that after having contracted to provide a loan of Rs. 20000/-, Sankaran brought the letter of guarantee and asked for a further loan of Rs. 5000/- which was refused by the bank. Then Sankaran took back the letter of guarantee and then returned it after making the alterations mentioned above. These changes were not consented to by Anirudhan but the Bank however kept the letter and sued Anirudhan on it. The High Court of Kerala relied on the principle contained in Section.87 of the Negotiable Instruments Act, 1881 which states:


“Effect of material alteration.—Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties; Alteration by endorsee.—And any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof. The provisions of this section are subject to those of sections 20, 49, 86 and 125.”


The High Court overturned the decision by applying the principle that there was implied consent of the appellant, allowed the appeal by the Bank and made Anirudhan (surety) liable to pay the amount of guarantee mentioned in the letter. Against this decision of the High Court, Anirudhan appealed in the Supreme Court.


Supreme Court

Civil AppellateJurisdiction: Civil Appeal No. 131 of 1961. Appeal from the judgment anddecree dated September 30, 1957, of the Kerala High Court in Appeal suit No. 19 of 1956 (T).The bench by the majority of 2:1 gave the decision that the surety is liable to the cost amounting to Rs 20,000/-.

Justice Kapur give out the judgement of this case, on the findings of High Court it was pointed out that, the bank agreed to give an overdraft of Rs20,000 to Sankaran but the appellant M.S Anirudhan was not aware of this alteration made, as he agreed for surety of Rs25,000/.

Appellant never stood for surety of Rs20,000 but for Rs25,000 which was altered by defendant with the knowledge of Principal Debtor Sankaran, if any variance made without the surety's consent discharges surety but in this case the alteration made without his consent, might have been advantageous to him.

Apex Court referred to This principle has also been formulated in Halsbury's Laws of England,in the following words:

“An alteration made in a deed, after its execution, in some particular which is not material does not in any way affect the validity of the deed; It appears that an alteration is not material which carries out the intention of the parties already apparent on the face of the deed..."

Court also look into other principle of Halsbury's Laws of England which states that:

“An unauthorised material alteration avoids a contract so that if a promisee after a written contract has been executed materially alters it without the consent of the promisor whether by adding anything to the contract or striking out any part of it or otherwise the contract is avoided as against the person who was otherwise liable upon it .It may also be taken to be the law that even if the alteration is made by a stranger without the knowledge of the promisee the other party is discharged if the contract is in possession of the promisee or his agent. But if the contract is altered by a stranger when the contract was not in the custody of the promisee the promisor is not discharged.”


Which means if the alteration is made by a stranger without theknowledge of the promisee the other party is discharged if the contract is in possession of thepromisee or his agent. But if the contract is altered by a stranger when the contract was not in thecustody of the promisee the promisor is not discharged. Therefore, Judge concluded that document was altered by the principal debtor who was acting as guarantee, since the surety is not discharged from his obligations he entrusts the letter of guarantee to the principal debtor by himself and the principal debtor makes any alteration in such a letter, such a condition squarely applies to this case.


Justice Sarkar gave a descending decision, alteration in document of guarantee was do not carry out intention of parties. Appellant was not aware of the alterations made by the principal debtor and bank and it was without the authorisation of appellant, such an alteration not bind of surety. If the alteration was ignored then this contract cannot come into existence and surety cannot be sued upon. if the alteration was without his consent then the altered document did not give rise to the contract that the surety was being sued upon as he never consented to it. This surety discharged due to the obligations of principal debtor and bank. Justice held that the suit against appellant must be dismissed.


According to Hidyatullah J., the alteration made in the letter of guarantee was immaterial and unsubstantial. It is conceded and indeed it is the law that only a material alteration makes a document void. He held that if on inquiry it is found that the alteration is unsubstantial or for the benefit of the surety, the surety will not be discharged and will be liable. Further he also gave the reasoning of agency as given by Kapur. J. Also he considered the alteration which law would have provided for had it not been made, as the sum that could be lent was only Rs. 20000/-It isalso the law that if the custodian of the document makes or allows an alteration to be made while thedocument is in his custody, he cannot sue upon it because it is his duty to preserve the documentthe state in which he got it. in this case the document was not altered by Bank but by the Sankaran so the question by High Court was whether the guarantee is material or not. High Court was of opinion that it was immaterial. Therefore, Justice dismissed the appeal. Court went with majority decision and dismissed the case.


Analysis

Section 133 of Indian Contract Act says that if any Variance made without the consent of surety, in terms of the contract between the principal debtor and creditor, discharges the duty of surety. This case is an exception to this principle and added a relevant point within the scope of Section 133 of Indian Contract Act, that only if the variance made by the principal debtor and creditor must be substantial or material. If the variance made without the consent of surety is beneficial to him or her then it cannot be come under the scope of Section 133 of Indian Contract Act.


Thomco's Bank LTD. asked M.S. Anirudhan (surety) to pay of the dues created by Sankaran (principal debtor). Anirudhan claimed that he was not aware of the alterations made between the Principal debtor and creditor. Bank give an overdraft for Rs 25,000 in which M.S.Anirudhan(surety) and Sankaran (principle debtor) duly signed but later bank was not able to accommodate Sankaran Rs 25000 so bank changed it into Rs 20,000 which was known by Sankaran. This alteration was not known by M.S. Anirudhan suit was filed to Trial Court and Anirudhan pleaded that under section 133 he was not aware of the alterations made by the principal debtor and creditor so he must discharge from his duty. Trial Court gave decision in favour Anirudhan. Thomco's Bank gave an appeal to High Court, were the court gave decision that the alterations made was immaterial and not substantial, even it is beneficial to surety as it reduced from Rs 25000 to Rs 20000. Also, the legal effect of the document which is providing a guarantee to the repayment of the loan by the principal debtor, Sankaran, was not varied. It still remained a letter of guarantee albeit for an amount lesser than what was initially proposed.


M.S. Anirudhan filed an appeal to Supreme Court and it was held in a 2:1 ratio decendi. Court looked after the principles of Halsbury's Laws of England and held that alterations made was immaterial and even it is beneficial to the surety, so under section 133 of Indian Contract Act the duty of surety cannot be discharged.


Therefore, it is understood that discharge of surety is possible only through material or substantial variations must be there. If there is any change in the position of the principal debtor as regards his creditors it must materially affect the position of the surety before the latter can be absolved from liability. It is necessary that alterations made must change the legal character of the document and there must be material variations only then surety can discharge its duty.


Discharge of surety can happen only if it is without his or her consent, here consent of Anirudhan was not there but the alteration was immaterial. However, in Section 135 of Indian Contract Act says about three mode of discharge from liability (1) Composition (2) Promise to give time (3) Promise not to sure the principal debtor


Under this provision discharge of surety can be awarded to the Anirudhan as this case was referred to Halsbury's Laws of England, they brought an exception to the case that the alterations must be material. Also, if it is beneficial to the surety then no discharge of duty can be awarded.


Analysis on Issues

  • Whether document i.e. contract of guarantee is void due to alteration made and does it discharge the surety of his liability?

Variance in terms of contract can discharge of surety, but in this case it was found that the alterations made by principal of debtor and creditor from Rs 25000 to Rs 20000 without the consent of surety cannot discharge the surety because this case brought out another two exception to the section 133 of Indian Contract Act that, the alterations made must be material or substantial and it should not be beneficiary to the surety but in this case it is beneficiary to the surety as Rs 25000 was reduced to Rs 20000, court looked into the principles of Halsbury’s Laws of England. Hence it is found that the document altered is not void and also it does not discharge the surety.Anirudhan is liable to pay Rs20000 to the bank.

  • Whether the alteration made by Sakaran in the documentby reducing the amount is a material alteration?

Alteration made by Principal debtor and creditor was without the consent of surety under section 133 if it is without the consent of the surety the duty of surety can be discharged even the alteration made will come under the conditions mentioned in section 135. The court referred this to common law principle i.e., Halsbury’s Law of England, there it was stated that the alteration made must be material or substantial. Therefore, court held that the alteration made by Sankaran was not material, so Anirudhan cannot discharge his surety.

  • Is the appellant, M.S. Anirudhancan be discharged of surety with such an alteration?

In order to discharge from his duty then alterations made must be without his consent, whether it is expressed or implied. Anirudhan would have discharged from his duty if the alterations made was material or substantial, but in this case the alteration made was immaterial. Even the court found that the alterations made was beneficial to the surety. The signed amount by Anirudh for surety was Rs 25,000 which was reduced to Rs20,000 this is beneficial to Anirudhan so his appeal was dismissed by the court. But Justice A.K. Sarkar found that alteration would amount to discharge of his duty as there was no consent of surety. Even the Trial court held in favour of him that he can discharge of his obligations as there was no consent evolved. Through the Halsbury’s Laws of England, the court found principle of materiality of alteration. Thus, he was liable to pay Rs20000 to the bank.


Effect of the Judgement

Anirudhan v. Thomco's Bank brought out a new exception to the scope of Section 133 of Indian Contract Act, the discharge of surety by variance only if:

(1) the alterations must be material or substantial.

(2) consent must not be there.

If the alteration made without his consent is beneficial to him or her then discharge of surety cannot be awarded. This was the first case which came to Court and brought out exception to Section 133.


Cases Cited

Winscombe v Piggott (1614) 1 CoRep 26b [1558-1774] All ER Rep 50 77 ER 1177

"These points were resolved:

When a lawful deed is raised, whereby it becomes void, the obligor may plead non, est factum, and give the matter in evidence, because at the time of the plea pleaded, it is not his deed."

Aldous v. Cornwell- L.R. 3 Q.R. 578

"This being the state of the authorities, we think we are not bound by the doctrine of Pigot's case or the authority cited for it; and not being bound. We are certainly not disposed to lay it down as a rule of law that the addition of words which cannot possible prejudice any one, destroys the validity of the note. It seems to us repugnant to justice and common sense to hold that the maker of a promissory note is discharged from his obligation to pay it because the holder has put in writing on the note what the law would have supplied if the words had not been written."


Conclusion

When there is a change in terms and condition of the contract between the creditor and principal debtor without obtaining the consent of surety. The surety will be discharged of all the transactions taking place after such change in terms and condition. The Liability of surety is same as that of the Principal debtor. If the principal debtor is not able to pay back the guarantee then the surety must be responsible. A creditor can directly proceed against the surety. Even a creditor has the right to sue the surety if the principal debtor is not paying the guarantee. A creditor can sue the surety directly without sueing the principal debtor. Surety becomes liable to make payment immediately when the principal debtor makes default in such payment. However, the primary liability to make payment is of the principal debtor, surety’s liability is secondary. Also, where the principal debtor cannot be held liable for any payment due to any defect in documents, then surety is also not responsible for such payment.Section 133 of Indian Contract Act, 1872. This section deals with the general rule that is all the parties should be privy to the contract. It stated that when an amendment or alteration takes place in the contract without taking consent of surety, the surety is discharged. Surety cannot be bound to something for which he has not contracted. Variation of contract between creditor and principal-this is a rule of long standing which means that if any variance is made in the agreement to which surety has signed and if it is made without the knowledge or consent of the and which may form into a new agreement even though the original agreement may, notwithstanding such variance then the surety will be discharged. This case the appellant was standing surety for Sankaran who took Rs20,000 overdraft from Thomco's Bank whereas the appellant was not aware of the fact that Rs 25,000 was latter reduced to Rs 20,000 by the bank and Mr. Sankaran, but appellant and principle debtor Mr. Sankaran duly signed for the overdraft of Rs 25,000. By Civil Appellate Jurisdiction the case was brought to a 3 Judge bench at Supreme Court and the court referred to Halsbury’s Law of England found that it was beneficial for the appellant therefore, Apex Court dismissed the case and there is no order as to costs. Through this case it is found an exception to Section 133 of Indian Contract Act, this was first time in which such a case reported in court. The court took principle from Halsbury's Laws of England which brought out new exception to the Section. For discharge of surety consent must not be there, the alteration must be material and also alterations must not be beneficial to the surety. In accordance with the majority decision the court dismissed the appeal from M.S. Anirudhan. The rule of discharge of surety laid down with a new exception by this judgement.


References

Books

  • Sir DinshawFardhunji Mulla, The Indian Contract Act page no. 164-165 (15th edition by AnirudhWadhwa)

  • Avtar Singh, Contract Act & Specific Relief page no. 641-643 (12th edition)

  • Professional Book Publishers, the Indian Contract Act 1872.

  • Vol. 8. Halsbury's Laws of England para 301, p.176 3rd Edn.

  • Vol. II, Halsbury's Laws of England, p. 370 3rd Edn.,


Cases

a) US Cases

  • Winscombe v Piggott (1614) 1 CoRep 26b [1558-1774] All ER Rep 50 77 ER 1177

  • Aldous v. Cornwell L.R. 3 Q.R. 578

b) Indian Cases

  • M.S. Anirudhan v. Thomco’s Bank Ltd., AIR (1963) SC 746 1963 SCR Supl. (1) 63


Internet sources


bottom of page