NEW INDIA ASSURANCE COMPANY LTD.versusSHRI KUSUMANCHI KAMESHWARA RAO AND ANR.

                                                                                      -

A                NEW INDIA ASSURANCE COMPANY LTD.
                                          v.
          SHRI KUSUMANCHI KAMESHWARA RAO AND ANR.

                               NOVEMBER 28, 1996

B                  [N.P. SINGH AND S.B. MAJMUDAR, JJ.]

           Surety Bond-Contract of guarantee-Temis reduced into wntmg
    Demand of Execution of the bond on plea contra!)' to the tenns-Held :
    guarantee bond is a repository of the obligations of the guarantor flowing from
C   the surety bon~17ie temis of the guarantee bond would govem the rights and
    obligations of the palties flowing from the contract of guarantee and any oral
    or documentary evidence would not be admissible to val)' the tenns of the
    written documenl-ln the facts of the present case, on the basis of the surety
    bond, no liability can be foisted on the guaranto!-lndian Contract Act,
D   186()-Evidmce Act, 1872-Sections 91 and 92.

        The Plaintiff (respondent No. 1 herein) filed a suit against the
  insurance Company defendant No. 1 (the appellant herein) and defendant
  No. 2 (the respondent No. 2 herein) alleging that the plaintiff had entered
  an agreement with defendant No. 2 vide Dissolution Deed dated 23.4.1971
E wherein the Defendant No. 2 had agreed to furnish guarantee bond for Rs.
  1 Iakh 25 thousand. On 26.4.1971 defendant No. 1 executed Surety Bond
  in favour of the plaintiff for the sum above mentioned. When defendant
  No. 2 failed to perform the terms of the above agreement, the plaintiff
  demanded the guarantee amount from defendant No. 1, which he failed to
  comply. The defendant in his written statement to the suit stated that the
F Surety Bond was executed on the basis of representation of the plaintiff
  and defendant No. 2 requesting the appellant to give guarantee for Rs. 1
  Iakh 25 thousand in respect of faithful performance of dealership of
  defendant No. 2 who was dealer of the plaintiff the wboleseller.

G         The surety bond mentioned an agreement dated 23.4.1971 but the
    same was between the dealer (defendant No. 2) and the wholeseller (Plain-
    tiff No. 1) in connection with sale of goods on credit and not dissolution
    of partnership between the plaintiff and defendant No. 2.

          The trial Court decreed the suit only against defendant No. 2. In
H appeal by the plaintiff the High Court allowing the appeal held that in
                                         280
              NEWINDIAASSURANCECO.LID.v. K.K. RAO                        281
  substance, the Surety Bond sought to cover the liability undertaken by A
  defendant No. 2 in favour of plaintiff, by Dissolution Deed dated 23.4.1971,
  and as the liability was not discharged by defendant No. 1, plaintiff No. 1
· was entitled to decree against appellant as well. Hence this appeal. Allow-
  ing the appeal, the court

      HELD : 1. On the basis of the Surety Bond, no liability can be foisted
                                                                                B
on the appellant to meet the obligation of defendant No. 1 flowing from
the Dissolution deed. On the express language of the Surety Bond, the
appellant insurance company had never entered into any surety bond. The
agreement dated 23rd April 1971 referred to in the Surety Bond has no
nexus or connection with the Dissolution Deed. Surety bond, which is a          C
repository of the guarantee given by defendant No. 1 has nothing to do
with the liquidated and ascertained liability of defendant No. 1 on dissolu-
tion of partnership between the plaintiff and defendant No. 1. Therefore
the said liability of defendant No. 2 as a partner on dissolution of partner-
ship cannot be said to be covered by the surety bond. When the guarantee        D
bond is reduced into writing, the terms of the guarantee bond will govern
the question as to whether the Surety had given a guarantee as culled out
from the said document. The terms of the guarantee bond would govern
the rights and obligations of the parties flowing from the contract of
guarantee and any oral or documentary evidence would not be admissible
to vary the terms of the written document. [292-A-D]                            E

       2. When guarantee bonds were reduced. to writing the express terms
of the writing containing the guarantee bond wonld be the repository of
the obligations of the guarantor flowing from the Surety Bond. As per
Sections 91 and 92 of the Indian Evidence Act, evidence de hors the terms F
of agreement, whether documentary or oral, can be led by the parties to
get out of the express terms thereof. Whether the express terms of the
guarantee bond give rise to the contract of guarantee sought to be enforced
will be the only limited enquiry which could be gone into by the courts while
deciding the rights and obligations flowing from such contract of guaran-
tee which is a tripartite contract between the creditor, principal debtor and G
the surety. Once such suretyship agreement is established on the clear
terms of the bond, no latitude can be given to the contracting party, namely
the surety or even the principal debtor to enable them to get out of the
obligations of the suretyship agreement flowing from such contract, except
in exceptional circumstances. [286-C-D]                                       H
    282                   SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A         U.P. Cooperative Federatio11 Ltd. v. Si11gh Co11sultants and E11gineers
    (P) Ltd., [1988] 1 SCC 174; General Technical Services Company Inc. v. Mis
    Punj So11s (P) Ltd., AIR (1991) SC 1994 and Hi11dustan Steel Workers
    Constmction Ltd. v. G.S. A twal & Co. (Engineers) Pvt. Ltd., [1995] 8 SCC
    76, relied on.

B           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4656 of
    1984.

         From the Judgment and Order dated 21.6.83 of the Andhra Pradesh
    High Court in A. No. 245 of 1976.

C        K.K. Jain, Ajay K. Jain, Shashi Bhusan and Pramod Dayal for the
    Appellants.

            R. Venugopala Reddy and B. Kanta Rao for the Respondents.

            The Judgment of the Court was delivered hy :
D
           S.B. MAJMUDAR, J. This appeal on the grant of special leave to
    appeal under Article 136 of the Constitution of India brings in challenge
    the judgment and decree passed hy Division Bench of the Andhra Pradesh
    High Court at Hyderabad whereby respondent no. l's suit against the
E   appellant-insurance company, which was defendant no. 1 in the suit, came
    to be decreed. In order to appreciate the grievance of the appellant against
    the impugned decree a few background facts deserve to be noted at the
    outset. We shall refer to the appellant as defendant no. 1, respondent no.
    1 as the plaintiff and respondent no. 2 as defendant no. 2 in the latter part
    of this judgment.
F
        The plaintifffiled a suit for recovery of Rs. 1,25,000 against both the
  defendants in the Court of Subordinate Judge, Kakinada, East Godavari
  District in the State of i\ndhra Pradesh. The plaintiffs case is that by a
  Deed dated 23rd April 1971 (Annexure A-2) entered into between the
  plaintiff and defendant no. 2, the 2nd defendant agreed and undertook to
G pay to the plaintiff a sum of Rs. 1,68,499.32 being the amount settled to be
  due to the plaintiff. The 2nd defendant also agreed to furnish a guarantee
  bond from the 1st defendant-insurance company for the due payment of
  Rs. 1,25,000 from out of the said amount of Rs. 1,68,499.32. Accordingly
  at the request of the 2nd defendant the 1st defendant agreed to execute a
H guarantee bond in favour of the plaintiff for the said amount of Rs.
                                                                                        -
                                                                                    l
          I
       NEIWINDIAASSURANCECO. LID.v. K.K.RAO [S.B. MAIMUDAR,J.] 283

    1,25,000. The 1st defendant excecuted a guarantee bond dated 26th April A
    1971 (Annexure A-1) in favour of the plaintiff by and under which the 1st
    defendant agreed and undertook to pay to the plaintiff at Kakinada the
    said sum of Rs. 1,25,000 or such lesser amount as may be demanded by the
    plaintiff on failure of the 2nd defendant to fulfil the terms of the agree,nent
    dated 23rd April 1971 (Annexure A-2). It is the further case of the plaintiff B
    that the first defendant also unconditionally and irrevocably agreed that
    the payment due under the guarantee bond, will be made to the plaintiff
    within ten days after the receipt of a written notice of demand from the
    plaintiff and without reference to 2nd defendant. The plaintiff contended
    that the said guarantee bond provided that it will be valid for a period of
    one year thereof. The plaintiff contended that as the 2nd defendant failed C
    to perform the terms of the agreement (Annexure A-2) the plaintiff
    demanded the guaranteed amount of Rs. 1,25,000 from the 1st defendant
    by registered notice dated 27th March, 1972. As it was not complied with,
    the plaintiff filed the aforesaid suit against both the defendants.
                                                                                  D
           The 2nd defendant remained ex parte and did not file any written
    statement. But the 1st defendant-insurance company, appellant herein,
    mbp written statement contending that it was not aware of any agreement
    dated 23rd April 1971 (Annexure A-2) said to have been entered into
    between the plaintiff and the 2nd defendant under which the 2nd defendant
    agreed and undertook to pay to the plaintiff a sum of Rs. 1,68,499.32 as E
    being the amount settled to ~ due to the plaintiff. The plaintiff and the
,   2nd defendant represented that the plaintiff was a wholeseller for the sale
    of nylo~n and fishing requisites and that he appointed the 2nd defen-
    dant as ~dealer for the sale of nylon yarn and the fishing requisites and
    that in co~ection with credit faciliti~s that were being given by the plaintiff F
    to the 2nd defendaiit
                  .  /
                            the 1st defendant might give a guarantee for the said
    sum of Rs. 1,25,000 in respect of the faithful performance of the said
    dealership. Based on the said representations of the plaintiff and the 2nd
    defendant, the 1st defendant executed a guarantee bond in favour of the
    plaintiff in a sum of Rs. 1,25,000 for the sale of nylon yarn and fishing
    requisites etc. The 1st defendant never agreed to furnish any guarantee to G
    the plaintiff in respect of any amount that had been settled to be due to
    the plaintiff on dissolution of their partnership. The allegation that the 2nd
    defendant agreed to furnish an insurance guarantee bond for the due
    amount of Rs. 1,25,000 from out of Rs. 1,68,499.32 from the 1st defendant
    and. at the request of the 2nd defendant the 1st defendant agreed to execute H
    284                    SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A a guarantee bond in favour of the plaintiff for the said sum of Rs. 1,25,000
    was therefore not true. The 1st defendant executed a guarantee bond in
    favour of the plaintiff for a sum of Rs. 1,25,000 in case the 2nd defendant
    does not account to the plaintiff in respect of the sale of nylon yarn and
    the fishing requisites etc. that have been entrusted to him by the plaintiff
B   to be sold. The allegation that 1st defendant executed a guarantee bona
    under which it agreed to pay Rs. 1,25,000 to the plaintiff at Kakinada or
    such lesser amount as may be demanded by the plaintiff on failure of the
    2nd defendant was not true.

          In view of the aforesaid stand taken by the appellant-defendant no.
C 1 insurance company the learned Trial Judge framed relevant issues and
    came to the conclusion that the plaintiffs claim could succeed only against
    defendant no. 2 who had not contested the suit, but so far as defendant no.
    1, the appellant herein, was concerned as it had not executed any guarantee
    in favour of the plaintiff in connection with the agreement or Dissolution
D   Deed dated 23rd April 1971 Annexure A-2, the suit was liable to fail
    against defendant no. 1-insurance company. The plaintiff carried the mat-
    ter in appeal and by the impugned judgment a Division Bench of the High
    Court took the view that in substance the surety bond Annexure A-1 sought
    to cover the liability undertaken by defendant no. 2 in favour of the plaintiff ·
    by the Dissolution Deed dated 23rd April 1971 and as that liability was not
E   discharged by defendant no. 2 the plaintiff was entitled to decree also
    against defendant no. 1 the guarantor insurance company and accordingly
    decreed the suit also against defendant no. 1. As noted above the said
    decree against defendant no. 1 has resulted in this appeal by the said
    defendant no. 1-insurance company.
F
            We have heard learned counsel for the parties and have gone
    through the relevant evidence on record. The only short point for deter-
    mination in this appeal is as to whether defendant no. 1-insurance
    company's predecessor insurance company, namely, Howrah insurance
    Company had entered into any agreement of guarantee for covering the
G   liability of defendant no. 2 arising out of the suit agreement dated 23rd
    April 1971 Annexure A-2. For deciding this point in issue the express
    written terms of the surety bond Annexure A-1 will have to be seen and
    appreciated. It is now well settled that once a bank guarantee is given the
    bank which gives the guarantee would be liable to fulfil its obligations
H   flowing from the terms of the guarantee and the court would not intervene
   NEW IND IA ASSURANCE CO. LID. v. K.K. RAO [S.B. MAJMUDAR,J.] 285

with such obligations flowing from the bank guarantee executed by the            A
concerned guarantor. In this connection a catena of decisions have been
rendered by this Court. We may only refer to a few of them. In UP.
Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd.
[1988] l SCC 174 Sabyasachi Mukharji, J. speaking for a two member
Bench of this Court has made the following pertinent observations in this
                                                                                 B
conn~ction :


        "Commitments of banks must be honoured free from interference
        by the courts. An irrevocable commitment either in the form of
        confirmed bank guarantee or irrevocable letter of credit cannot be
        interfered with. In order to restrain the operation either of ir-        C
        revocable letter of credit or of confirmed letter of credit or of bank
        guarantee, there should be serious dispute and there should be
        good prima facie case of fraud and special equities in the form of
        preventing irretrievable injustice between the parties. Otherwise
        the very purpose of bank guarantees would be negatived and the           D
        fabric of trading operation will get jeopardised. Upon bank guaran-
        tee resolves many of the internal trade and transactions in a
        country."

Similar view is taken by a three member Bench of this Court in the case
of General Technical Services Company Inc. v. M/s. Punj Sons (P) Ltd., AIR       E
(1991) SC 1994. We may also refer in this connection to a recent decision
of this Court in the case of Hindustan Steel Workers Construction Ltd. v.
G.S. Atwal & Co. (Engineers) Pvt. Ltd., (1995] 6 SCC 76 wherein Paripoor-
nan, J. speaking for a two member Bench of this Court has observed that
in the case of confirmed bank guarantees/irrevocable letters of credit, the      F
Court will not interfere with the same unless there is fraud and irretrievable
damages are involved in the case and fraud has to be an established fraud.

      In the light of the aforesaid settled legal position we wiJl have to see
whether defendant no. 1 had given any guarantee to meet the liability of
defendant no. 2 qua the plaintiff arising from the Deed of Dissolution G
dated 23rd April 1971 Annexure A-2. If such a guarantee is culled out from
the express language of the guarantee bond Annexure A-1 then obviously
the plaintiff can succeed in the absence of any fraud being alleged to have
been perpetrated on the insurance company by the plaintiff and/or defen-
dant no. 2 qua the said guarantee bond. No such fraud has been pleaded H
    286                   SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R .. I
A by defendant no. 1-insurance company. But its defence is to the effect that
  the insurance company-defendant no. 1 had never agreed to give any
  guarantee for meeting the liability of defendant no. 2 qua the plaintiff as
  flowing from the Dissolution Deed dated 23rd April 1971. That contention
  has to be appreciated in the light of the express language of the guarantee
B bond Annexure A-1. It is obvious that when such guarantee bonds are
  reduced to writing the express terms of this writing containing the guaran-
  tee bond would be the repository of the obligations of the guarantor flowing
  from the surety bond. As per Sections 91 and 92 of the Indian Evidence
  Act no evidence de hors the terms of the agreement, whether documentary
  or oral, can be led by the parties. to get out of the express terms thereof.
C Whether the express terms of the guarantee bond give rise to the contract
  of guarantee sought to be enforced will be the only limited enquiry which
  could be gone into by the courts while deciding the rights and obligations
  flowing from such contract of guarantee which is a tripartite contract
  between the creditor, principal debtor and the surety. Once such suretyship
D agreement is established on the clear terms of the bond, t~en as laid down
  by the aforesaid decisions of this Court no latitude can be given to the
  contracting party, namely, the surety or even the principal debtor to enable
  them to get out of the obligations of the suretyship agreement flowing from
  such contract, except in exceptional circumstances as indicated in these
  decisions.
E
          Keeping this settled legal position in view we, therefore, have to see
  whether the guarantee bond Annexure A-1 covers the obligations of defen-
  dant no. 2 qua the plaintiff as flowing from the Dissolution Deed Annexure
  A-2. The plaintiff seeks to rope in defendant no. 1-insurance company only
p on the basis of such obligation of defendant no. 2 flowing from Annexure-2
  q1rn the plaintiff. If the guarai;tee bond Annexure A-1 does not cover such
  liability there will be no contract of guarantee for covering such an obliga-
  tion between the parties and hence the plaintiffs suit would be required
  to be dismissed as was done by the Trial Court. On the other hand if the
  guarantee bond Annexure A-1 on its express terms creates suretyship
G contract on the part of the insurance company and constitutes it as a
  guarantor for discharging liability of defendant no. 2 qua the plaintiff
  pursuant to the Dissolution Deed Annexure A-2 then obviously the plaintiff
  would be entitled to the decree on the basis of the said contract of
  guarantee even against the appellant-insurance company as held by the
H High Court. In this connection, therefore, we have to keep in juxtaposition
        NEWINDIAASSURANCECO. LID.v. KKRAO[S.B.MAJMUDAR,J.] 'lll7

     the guarantee bond Annexure A-1 with the Deed of Dissolution Annexure A
     A-2 with a view to finding out whether there is any nexus or connection
     between the two as alleged by the plaintiff. Relevant recitals of the guaran-
     tee bond Annexure A-1 dated 26th April 1971 read as under:

             "WHEREAS SRI SATYANARAYANA & COMPANY,
             KAKINADA, hereinafter called the Dealer have entered into an       B
             agreement Dt. 23rd April, 1971 with Sri KUSUMANCHI
             KAMESWARA RAO, KAKINADA, hereinafter referred to as
             Sri Kusumanchi Kameshwara Rao for the sale of Nylon & Fishing
             requisite etc.
                                                                                c
             AND WHEREAS UNDER the terms and conditions of the
             aforesaid agreement the Dealer has agreed to furnish to Sri
             Kusumanchi Kameswara Rao Insurance Guarantee for Rs.
             1,25,000 (RUPEES ONE LAKH TWENTY FIVE THOUSAND
             ONLY) for faithful performance of the said Agreement.              D
             AND WHEREAS THE DEALER HAS REQUESTED THE
             HOWRAH INSURANCE COMPANY LIMITED to execute a
             guarantee as above, which the said HOWRAH INSURANCE
             COMPANY LIMITED, has agreed to do on certain terms and
             conditions.
                                                                                E

-·           NOW, THEREFORE, in consideration of the agreement and at
             the request of Sri SATYANARAYANA & COMPANY
             KAKINADA, (Dealer), We, HOWRAH INSURANCE COM-
             PANY LIMITED do hereby agree and undertake to pay to Sri           F
             Kusumanchi Kameswara Rao at Kakinada a sum of Rs. 1,25,000
             (Rupees ONE LAKH TWENTY FIVE THOUSAND only) or
             such less amount as may be demanded by Kusumanchi Kame~wara
             Rao, Kakinada on the failure of the Dealer to perform faithfully
             all or any terms and conditions of the aforesaid agreement.
                                                                                G
             WE ALSO AGREE UNCONDITIONALLY AND irrevocably
             that payment due hereunder will be made to Kusumanchi Karnes-
             wara Rao by us within Ten days after receipt of a Written notice
             of demand from Kusumanchi Kameswara Rao notwithstanding
             dispute or disputes if any, between Kusumanchi Kameswara Rao       H
    288                    SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A            and the Dealer, without demur and without any reference to the
             said Dealer.

             THIS AGREEMENT WILL BE VALID for a period of one year
             from the date hereafter."

B
    A mere look at the aforesaid surety bond shows that the predecessor-in-
    interest of the appellant-insurance fOmpany, namely, Howrah Insurance
    Company Limited had guaranteed to pay on behalf of defendant no. 2 an
    amount of Rs. 1,25,000 or any lesser sum to the plaintiff in connection with
    the agreement of 23rd April 1971 by which defendant no. 2 as dealer had
C entered into a contract with the plaintiff to purchase nylon yarn and fishing
    requisites etc. on credit upto the limit of Rs. 1,25,000 and towards the sale
    price of the said commodities agreed to be sold on credit the defendant
    no. 2 as purchaser had undertaken a liability to pay to the extent of Rs.
  , 1,25,000 to the plaintiff and if that liability was not discharged by defendant
D no. 2 the guarantor insurance company had to make good the said liability
    on behalf of defendant no. 2 in favour of the plaintiff. Thus on the express
    terms of this document the contract of continuing guarantee undertaken
    by the insurance company in favour of the plaintiff was in connection with
    the goods, namely, nylon yarn and fishing requisites which were to be sold
    on credit by the plaintiff to dealer of those goods, namely, defendant no.
E 2 and that guarantee was confined up to the limited amount of Rs. 1,25,0_00
    and it was to enure for one year meaning thereby that from 26th April 1971
    for a period of one year if nylon yarn and fishing requisites etc. were sold      •
    by the plaintiff to defendant no. 2 on credit, the insurance company as
    guarantor was to make good the liability of unpaid purchase price thereof
p incurred by defendant no. '2 to the extent of Rs. 1,25,000 in favour of the
    plaintiff if the sale pri~ to that extent was not made good in the first
    instance by defendant no. 2. On the express terms of this surety bond,
    therefore, it must be held that it was to operate in future for guaranteeing
    the payment of safo price of nylon yarn and fishing requisites which might
    be sold by the plaintiff on  credit to defendant no. 2 Within that period and
G to the extent of Rs. 1,25,000 of such unpaid price by defendant no. 2 the
    insurance company had agreed to stand as guarantor. It is no doubt true
    that this guarantee bond refers to an agreement dated 23rd April 1971 but
    that agreement is stated to be the agreement between the dealer-defendant
    no. 2 and the plaintiff in connection with sale of nylon yarn and fishing
H requisites on credit. It is interesting to note that no such agreement is relied
   NEW INDIA ASSURANCE CO. LTD. v. K.K. RAO [S.B. MAIMUDAR, J.] 289

upon by the plaintiff for foisting the liability on defendant no. 1-insurance A
company pursuant to the said document. On the contrary it is the case of
the plaintiff that the insurance company had agreed to underwrite liability
of defendant no. 2 flowing from an entirely different agreement dated 23rd
April 1971 regarding dissolution of their partnership, Annexure A-2 which
is purported to be executed on that day between the plaintiff on the one
                                                                              B
hand and the defendant no. 2 on the other. When we turn to Annexure
A-2 we find that it is entirely a different document. It is a Deed of
Dissolution between the partners for dissolution of partnership. It recites
that this Dissolution Deed was made on 23rd day of April 1971 between
plaintiff and defendant no. 2. The relevant recitals of this document
deserve to be noted at this stage. They read as under :                       C

        "1. Whereas the party number one, Gannavarapu Subbarao is the
        working partner and whereas the party number two Kusumanchi
        Kameswara Rao is the financing partner in the partnership furn
        called M/s Sri Satyanarayana and Co., Kakinada and whereas the D
        parties hereto hereby declare that the said partnership between
        them carried on under the name and style of Mis Sri Satyanarayana
        and Company under the deed of partnership dt. 1.10.1968 be
        dissolved from 1.4.1971 and whereas the party number two
        Kusumanchi Kameswara Rao has to get from the firm a sum of
        Rs. 1,68,499.32 Ps (Rupees one Lakh Sixty Eight thousand four E
        hundred and ninety nine and paisa Thirty two only) towards the
        amount that was invested by him and whereas the party number
        one Ganavarapu Subbarao has agreed to pay the said amount and
        retain the said partnership furn for himself and whereas the party
        number two Kusumanchi Kameswara Rao on the other hand is
                                                                            F
        willing to retire from the firm after taking the said amount of Rs.
        1,68,499.32 from the party number one Sri Gannavarapu Subbarao
        and the said partnership dated 1.10.1968 carried on under the
        name and style of Sri Satyanarayana and Company shall be deemed
        to have been dissolved by mutual consent as and from 1.4.1971 and
        the said business shall henceforth be carried on by the said party G
        number one Gannavarapu Subba Rao under the same name, as
        Sri Satyanarayana and Co., as a sole-proprietor.

        2. The said amount of Rs. 1,68,499 .32 ps agreed to be paid by the
        party number one Sri Gannavarapu Subbarao was paid by Oze said H
    290                  SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.

A            Gannavarapu Subbarao to Sri Kusumanchi Kameswara Rao by
            furnishing Howrah Insurance Company Guarantee Bond for a sum
            of Rs. 1,25, 000 (One lakh Twenty Five thousand Rupees) and by
            executing two pronotes one for Rs. 25,000 (Twenty five thousand
            rupees) and another for Rs. 15,000 (fifteen thousand rupees) with
            different sureties for the said two pronotes along with him and by
B           creating mortgages on the properties of the said sureties according
            to law and by paying cash of Rs. 3,499.32 ps. The said party number
            one Gannavarapu Subbarao further undertakes to pay interest at
            the rate of one per cent per mensem on the said insurance
            guarantee bond amount of Rs. 1,25,000 or the balance that may be
c           outstanding after deducting the pa~ents made if any on the first
            every month to the party number two the said Kusumanchi Karnes-
            wara Rao. Whereas the said Kusumanchi Kameswara Rao assigns
            to the party number one Gannavarapu Subbarao all that the money
            and the interest of the said party number two, the said Sri
            Kusumanchi Kameswara Rao in the said partnership from Sri
D
            Satyanaryana and Company, Kakinada and the business, the good-
            will property assets and liabilities book debts and the outstanding
            payable and the other debts and the partnership outstanding
            against other persons to hold the same to the said party number
            one Sri Gannavarapu Subbarao absolutely. All the moneys payable
E           to the said Sri Kusumanchi Kameswara Rao, the party number two
            by the party number one Sri Gannavarapu Subbarao shall be
            supported by receipts and payments made without receipts shall
            not be valid and shall not be countenanced."

                                                           [Emphasis supplied]
F
    The aforesaid recitals in this Dissolution Deed make an interesting reading.
    As seen from these recitals especially found in paragraph 2 of the agree-
    ment Annexure A-2 it becomes clear that on 23rd April 1971 defendant
    no. 2 was alleged to have paid to the plaintiff towards the sum of Rs.
G   1,68,499.32 an amount of Rs. 1,25,000 by way of guarantee bond furnished
    by Howrah Insurance Company. When we turn to the guarantee bond
    Annexure A-1 we find that it was executed not on 23rd April 1971 but on
    26th April 1971. It, therefore, becomes highly doubtful whether the Dis-
    solution Deed said to be dated 23rd April 1971 would have seen the light
H   of the day on 23rd April 1971 itself or at any time after 26th April 1971 if
           NEWINDIAASSURANCECO.LTD.v. KKRAO[S.B.MAJMUDAR,J.] 291

         at all there was any connection between the guarantee bond Annexure A-1 A
          and Deed of Dissolution Annexure A-2. Not only that but the further
      ,. recitals in paragraph 2 of the Dissolution Deed Annexure A-2 show that
         two promissory notes seem to have been got executed from defendant no.
         2 by the plaintiff and mortgages were also executed on the properties of
         sureties ilt connection with those promissory notes. Neither the promissory B
         notes are on record, nor the mortgages are no record. Therefore, it appears
         highly doubtful whether the Deed of Dissolution Annexure A-2 was at all
         in existence on 23rd April 1971. It appears to be a highly suspicious and
         spurious document. But leaving aside that aspect of the matter on the
         express language of the surety bond Annexure A-1 no doubt is left in our
         minds undoubtedly that the appellant-insurance company or its predeces- C
         sor had never entered into any surety bond as per Annexure A-1 dated
         26th April, 1971 for securing the payment of Rs. 1,25,000 in favour of the
         plaintiff in connection with the amount found due from defendant no. 2 at
          the foot of partnership account. There is no whisper about such liability in
          the guarantee bond Annexure A-1. Therefore, the agreement dated 23rd D
          April 1971 referred to in the surety bond necessarily has no nexus or
          connection with the Dissolution Deed Annexure A-2. It is not the case of
          the plaintiff that any other document of 23rd April 1971 containing the
          terms and conditions of sale of nylon yarn and fishing requisites on credit
         to defendant no. 2 during a span of one year thereafter was ever executed
         between the parties. On the contrary the plaintiffs case is that defendant E
         no. 2 had undertaken the liability to pay Rs. 1,68,499.32 as per the Dissolu-

-        tion Deed and towards that amount a security of Howrah Insurance
         Company was offered by defendant no. 2 in favour of the plaintiff to the
         extent of Rs. 1,25,000. As we have seen earlier, Annexure A-1 which is a
         repository of the guarantee given by defendant no. 1, has nothing to do F
         with the liquidated and ascertained liability of defendant no. 2 on dissolu-
        -tion of partnership between the plaintiff and defendant no. 2. Therefore,
         the said liability of defendant no. 2 as a partner on dissolution of partner-

...       ship cannot be said to be covered by the surety bond Annexure A-1. The
          learned judges of the High Court have taken the view that in substance the G
          surety bond Annexure A-1 has sought to cover the liability of defendant
          no. 2 against the plaintiff pursuant to the Dissolution Deed. With respect
          it is difficult to sustain such a finding as the contract of guarantee is
          reduced into writing and hence the express terms of the guarantee bond
         Annexure A-1 have only to be seen with a view to finding out whether any
          such guarantee was ever given by the appellant-defendant no. 1 in favour H
    292                   SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.
A of the plaintiff. On the express terms of the guarantee bond Annexure A-1
     it must be held that it had nothing to do with the liability of defendant no.
     2 under the Dissolution Deed Annexure A-2 and that liability was not
    secured and no guarantee was given by Howrah Insurance Company qua
    that liability of defendant no. 2 pursuant to the said bond. The learned
B   judges of the High Court had placed great reliance on the circumstance
    that the insurance company had not produced any other agreement dated
    23rd April 1971 if that was relied upon for giving the guarantee. It is
    difficult to appreciate the line of reasoning. When the guarantee bond is
    reduced into writing the terms of the guarantee bond will govern the
    question as to whether the surety had given a guarantee as culled out from
C   the said document. If the plaintiff wanted to show that there was any other
    guarantee given by defendant no. 1 de hors this surety bond it was for the
    plaintiff to produce such a document which the plaintiff failed to do. Even
    that apart such an affort on the part of the plaintiff would not have been
    permissible in law as the terms of the guarantee bond would govern the
D   rights and obligations of the parties flowing from the contract of guarantee
    and any oral or documentary evidence would not be admissible to vary the
    terms of this written document as seen earlier. The learned counsel for the
    appellant, however, vehemently submitted that to the suit notice given by
    the plaintiff to defendant no. 1 no stand was taken by the appellant in its
    reply that it had not entered into any such agreement. Strictly speaking
E   such notice correspondence would not be much relevant for deciding the
    moot question whether there was any contract of guarantee between the
    parties for covering the transaction in question when the document itself
    is available on record. However even if we turn to the plaintiffs advocate's
    notice dated 27th March 1972 on which strong reliance was placed by
F   learned counsel for the plaintiff we find that all that was stated in that
    notice was to effect that the appellant had executed an agreement dated
    23rd April 1971 in favour of the plaintiff whereby they had undertook to
    pay to his client at Kakinada a sum of Rs. 1,25,000 (One lakh and twenty
    five thousand rupees) or such less amount as may be demanded by his
    client on the failure of the dealer, Sri Satyanarayana and Company,
G   Kakinada to perform all or any of the terms and conditions of the agree-
    ment dated 23.4.1971 entered into between his client and the said company.
    The reply of the insurance company dated 4th May 1972 advised the
                                                                                     )
    plaintiff to exhanst all means of recovery from defendant no. 2 according
    to the agreement. However it is pertinent to note that even in the suit
H   notice given by the plaintiff to defendant no. 1 the emphasis is on the
       NEW INDIA ASSURANCE CO. LTD.v. K.K. RAO[S.B. MATMUDAR,J.] '1293

     agreement of dealership by which defendant no. 2 as a dealer was under A
'    an obligation to perform the terms and conditions of the agreement.
     Nowhere it is stated that the defendant no. 2 as retiring partner had
     undertaken liability under the Dissolution Deed to pay the amount falling
     due to the plaintiff from defendant no. 2 when the firm was dissolved. As
     by Annexure A-1 the insurance company had already undertaken liability
                                                                                     B
    to pay the unpaid sale price of the good' sold by the plaintiff to the
    defendant no. 2 dealer it is obvious that in reply to the notice the appellant
    would rely upon the very same terms and conditions of the surety bond
    Annexure A-1. Therefore, it could not be said that the said reply to the
     notice implied any admission on the part of the appellant that it had given
    guarantee lo pay up the dues of defendant no. 2 on the basis of the            c
     Dissolution Deed Annexure A-2. The learned counsel for the respondent-
     plaintiff would have been on a firmer ground if the notice had recited that
     the insurance company had undertaken the liability to pay Rs. 1,25,000
    which were payable on dissolution of partnership between the plaintiff and
     defendant no. 2 and despite such recitals in the notice the insurance D
     company had not objected. Besides such an attempt remain impermissible
     in law as express terms of the bond could not be varied by any oral or
     documentary evidence to the contrary. In any case a' there was no allega-
    tion in the notice itself connecting it with the liability of defendant no. 2
    flowing from the Dissolution Deed Annexure A-2 there wa' no occasion
    for the appellant to deny its obligation as a surety qua s•1ch a liability. E
    Similarly Annexure B-1, a guarantee bond executed by defendant no. 2 in
    favour of defendant no. 1 on which reliance was placed by learned advocate
    for the plaintiff also is of no avail to ·enable the plaintiff to get out of the
    express terms of surety bond Annexurc A-1. As discussed above it is found
    that the appellant-insurance company or its predecessor had not given any F
    guarantee to cover the liability of defendant no. 2 to the extent of Rs.
    !,25,000 flowing from Dissolution Deed Annexure A-2. The guarantee
    given was for entirely a different transaction, that is for securing th
    payment of unpaid price of goods to be sold on credit by the plaintiff to
    dealer defendant no. 2 over a course of period and the guarantee was to
    continue for such future period up to one year. It is not the case of the G
    plaintiff that defendant no. 2 had during that period failed to pay purchase
    price of the goods, namely, nylon yarn and fishing requisites. Nor has the
    plaintiff invoked suretyship agreement in that connection. The suit is based
    on entirely a different alleged guarantee said to have been given by the
    insurance company to cover the liability of defendant no. 2 flowing from H
    294                  SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A the Dissolution Deed. For such an obligation of defendant no. 2 flowing
  from Annexure A-2 there is no contract of guarantee at all given by
  defendant no. 1. In short on the basis of the surety bond Annexure A-1 no
  liability can be foisted on the appellant to meet the obligation of defendant
  no. 2 flowing from the Dissolution Deed Annexure A-2. As the saying goes
B ~ 'l11m '!i'f: ~ i.e., if there is no root where is the question of having
  branches. Consequently it is not possible to agree with the finding of the
  High Court as recorded at page 37 of the impugned judgment to the effect
  that the agreement mentioned in para 1 of Ex. A-1 has reference to Ex.
  A-2 agreement executed between the 2nd defendant and the plaintiff and
  that the parties understood the Dissolution Deed Ex. A-2 dated 23rd April
C 1971 as being in the nature of sale of nylon yarn and fishing requisites in
  favour of defendant no. 2 represented by G. Subbarao, the other partner.
  This finding flies in the·face of the express terms of the guarantee bond
  Annexure A-1 and with respect amounts to re-writing the guarantee bond
  itself. Such a new guarantee bond cannot be culled out from the language
D of Annexure A-1. Such an exercise is totally impermissible on the facts and
  circumstances of the case.


        For all these reasons, therefore, the appeal is allowed. The judgment
  and decree passed by the Division Bench of the High Court against the
E appellant are quashed and set aside and the suit of the plaintiff against the
  appellant-defendant no. 1 is dismissed and the decree of dismissal of the
  suit against defendant no. 1 as passed by the Trial Court is restored.
  Pending this appeal by an order dated 23rd November 1984 this Court had
  ordered that the amount already deposited by the appellant in the Trial
  Court shall be paid to the First Respondent on security being furnished hy
F the said Respondent to the satisfaction of the Trial Court for repayment
  of the amount to the appellant in the event of the appeal being allowed by
  this Court. As the appeal is allowed it is directed that if the first respon-
  dent-plaintiff has withdrawn the deposited amount from the Trial Court on
  furnishing security to the satisfaction of the Trial Court then first respon-
G dent-plaintiff shall refund the said amount to the appellant-insurance com-
  pany with six per cent interest from the date of such withdrawal till
  repayment to the appellant-insurance company. Such repayment with in-
  terest shall be made by the respondent-plaintiff to the appellant-insurance
  company within four months from today. If on the other hand the amount
H has remained deposited in the Trial Court and respondent-plaintiff has not
   NEW INDIA ASSURANCE CO. LTD. v. K.K. RAO (S.B. MAJMUDAR,J.] 295

withdrawn the same the said amount shall be permitted to be withdrawn         A
by the appellant-defendant no. 1 insurance company from the Trial Court.
If such deposited amount is already invested by the Trial Court then the
appellant-insurance company will be entitled to withdraw the said amount
along with total accrued interest on such invested amount. In the facts and
circumstances of the case there will be no order as to costs. Orders
                                                                              B
accordingly.

K.T.                                                      Appeal allowed.