Surety liability survives nationalisation: guarantee remains enforceable, securities-based discharge fails, and frustration does not apply.

A surety is not discharged merely because the principal debtor's undertaking is nationalised or its assets vest by operation of law. The guarantee remains enforceable where the statute preserves prior liabilities, and the creditor's suit against the guarantors is maintainable. Discharge for loss or impairment of securities applies only when the creditor, by a voluntary act attributable to him, loses or parts with security without the surety's consent; loss by operation of law does not suffice. The contract of guarantee was also not frustrated, because the supervening statutory vesting did not make performance legally impossible. The appeal succeeded and the decree for the creditor was restored.

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Issues: (i) Whether the nationalisation of the principal debtor's undertaking discharged the guarantors or barred the creditor's suit against them; (ii) whether the guarantors were discharged under the Contract Act because the creditor lost or parted with the securities; (iii) whether the contract of guarantee stood frustrated by supervening events.

Issue (i): Whether the nationalisation of the principal debtor's undertaking discharged the guarantors or barred the creditor's suit against them.

Analysis: The liability of a surety is co-extensive with that of the principal debtor unless the contract provides otherwise. The nationalisation statute preserved prior liabilities of the owner and did not extinguish the principal debt or the separate obligation undertaken by the guarantors. The creditor's inability to recover fully from the principal debtor after vesting of the assets did not nullify the deed of guarantee, and the suit against the sureties remained maintainable.

Conclusion: The guarantors were not discharged, and the creditor's suit was maintainable against them.

Issue (ii): Whether the guarantors were discharged under the Contract Act because the creditor lost or parted with the securities.

Analysis: The statutory protection for a surety applies when the creditor, by a voluntary act attributable to him, loses or parts with security without the surety's consent. A loss of security resulting from operation of law is not the same as a creditor's act of losing or parting with the security. On the facts, the securities were not lost or impaired by any inconsistent act or omission of the creditor within the meaning of the relevant provisions.

Conclusion: The guarantors were not discharged under the provision relating to loss or impairment of securities.

Issue (iii): Whether the contract of guarantee stood frustrated by supervening events.

Analysis: Frustration requires a valid subsisting contract, remaining performance, and supervening impossibility making performance radically different. The guarantee was an independent contract, and the supervening statutory vesting did not render performance impossible in the legal sense. The obligation to honour the guarantee continued.

Conclusion: The contract of guarantee was not frustrated.

Final Conclusion: The appeal succeeded, the judgment under challenge was set aside, and the decree in favour of the creditor was restored.

Ratio Decidendi: A surety is not discharged merely because the principal debtor's assets are vested by operation of law or because the creditor cannot recover fully from the principal debtor; discharge under the securities provision requires loss or parting with security attributable to the creditor, and frustration does not apply to an independent guarantee unless performance becomes legally impossible.

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