A surety is someone who promises to take responsibility for another person’s debt or obligation if they fail to meet it. Under the Indian Contract Act, 1872, a surety can be discharged from this responsibility under certain situations. Sections 130 to 141 of the Act clearly explain when and how a surety is released from liability. This article simplifies these legal provisions and explains them with illustrations and case examples.
Situations When a Surety is Discharged
- By Revocation of Continuing Guarantee (Section 130)
If a guarantee is continuous (meant for future transactions), the surety can cancel it by giving notice to the creditor. After such notice, the surety is no longer responsible for future dealings. However, they are still liable for transactions done before the notice was given.
Example: If A guarantees B’s payments up to ₹50,000 and later revokes the guarantee, A is still responsible for the payments already made, but not for future ones.
You can also read the Judgement of Romesh Thappar v. State of Madras (1950 SC 124)
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- By Death of the Surety (Section 131)
If a surety dies, the continuing guarantee automatically ends for future transactions, unless there is a contract saying otherwise.
- By Change in the Contract Without Surety’s Consent (Section 133)
If the creditor and principal debtor change the terms of their contract without the surety’s permission, the surety is discharged. This protects the surety from being held liable for something they didn’t agree to.
- By Discharge of Principal Debtor (Section 134)
If the creditor releases the principal debtor from liability or takes an action that legally discharges the debtor, the surety is also released. This includes both express agreements and actions that indirectly release the debtor.
- By Composition, Giving Time, or Promise Not to Sue (Section 135)
If the creditor agrees to a settlement (composition), gives more time to the debtor, or agrees not to sue the debtor without the surety’s consent, the surety is discharged from their liability.
- When Creditor Harms Surety’s Rights (Section 139)
If the creditor does something—or fails to do something—that harms the surety’s right to recover from the principal debtor later, the surety is released. For example, if the creditor loses security given by the debtor, the surety’s liability may be reduced.
- Loss of Security by Creditor (Section 141)
If the creditor loses or gives up security (like collateral) provided by the debtor without the surety’s approval, the surety is discharged to the extent of the value of that security.
Judicial Analysis
- Sita Ram Gupta v. Punjab National Bank: The court held that the surety could not revoke the guarantee because he had agreed to a clause saying the guarantee was continuing and irrevocable.
- Anirudhan v. Thomco’s Bank Ltd: The surety was not discharged because the change in the contract was beneficial to him.
- Chekkara Ponnamma v. A.S. Thammayya: The surety failed to prove the amount recovered from selling vehicles after the debtor’s death and was not allowed to recover the amount paid.
Conclusion
Understanding when a surety is discharged is essential for anyone entering into a contract of guarantee. These legal provisions ensure that a surety is only held liable under fair and agreed terms. The Indian Contract Act, through Sections 130 to 141, gives clear guidelines on protecting the interests of sureties while maintaining the balance between all parties involved. Proper knowledge and application of these rules help avoid legal confusion and ensure fair treatment in financial transactions.
