Court caseAIR 1970 SC 504

The Highland Bank, managed by M.C. Chacko, had an overdraft with the State Bank of Travancore guaranteed by Chacko. His father, K.C. Chacko, executed a deed of partition among his family members which allotted certain properties to M.C. Chacko and provided that the liability to the State Bank, if any, should be met by M.C. Chacko from those properties. The State Bank sued the Highland Bank, the guarantor and the other family members, claiming to recover the overdraft from the properties under the deed.

The Supreme Court held that the State Bank could not. Shah J restated the rule that a person not a party to a contract cannot, subject to certain well-recognised exceptions, enforce its terms. The exceptions are a beneficiary under a trust or charge created by the contract, and family arrangements and similar cases. The deed of partition did not create a charge or trust in favour of the Bank; it merely regulated the family members' liability among themselves. The claim against the properties failed, and the suit against the guarantor was separately barred by limitation.