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

Citation: [1996] SUPP. 9 S.C.R. 280 · Decided: 28-11-1996 · Supreme Court of India · Bench: N.P. SINGH · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
NEW INDIA ASSURANCE COMPANY LTD. 
v. 
SHRI KUSUMANCHI KAMESHWARA RAO AND ANR. 
NOVEMBER 28, 1996 
[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 
on the appellant to meet the obligation of defendant No. 1 flowing from 
B 
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
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