Bank settlement with official liquidator extinguishes guarantor liability where principal debt is fully discharged.

Bank acceptance of the official liquidator's payment in full and final settlement extinguished the principal debtor's liability, and the guarantors could not remain liable for any further recovery because surety liability is coextensive with that of the principal debtor. The reasoning distinguished discharge by settlement from discharge under insolvency or liquidation law, holding that the latter was not the basis of relief here. The challenge to continued recovery against the guarantors therefore failed, and the orders exonerating them from further liability were sustained.

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Issues: (i) Whether acceptance by the bank of the amount paid by the official liquidator towards full and final settlement of the bank's claim against the principal debtor discharged the guarantors from further liability.

Analysis: The bank had itself applied before the company court to receive the amount offered by the official liquidator as full and final settlement of its claim, and the company court accepted that settlement. Once the principal debtor's liability stood extinguished by such settlement, the surety's liability, which is coextensive with that of the principal debtor, could not survive for recovery of any further amount. The plea based on discharge under operation of insolvency or liquidation law was held inapplicable because the discharge here flowed from the bank's own settlement, not from a statutory absolution of the debtor.

Conclusion: The guarantors were held not liable for any further recovery, and the challenge to the appellate tribunal's order failed.

Final Conclusion: The writ petitions were found devoid of merit, and the orders exonerating the guarantors from further liability were sustained with costs.

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