Surety discharge where creditor permits unauthorized variation - liability limited to obligations before the variance, not subsequent overdrafts.

The central issue is whether sureties are discharged when the creditor permits the principal debtor to overdraw beyond a sanctioned cash credit facility. Applying Section 133, the unauthorized overdraft is a variance that discharges the surety only as to transactions after the variance. Applying Section 139, discharge requires a creditor act or omission that impairs the surety's eventual remedy; no such impairment is shown here. Outcome: sureties remain liable to the extent of the original sanctioned amount of Rs. 4,00,000 with applicable interest and are not liable for overdrafts beyond that without their consent.

---

---

Issues: Whether the guarantors/sureties are discharged under Section 139 of the Indian Contract Act, 1872 by reason of the creditor's acts or omissions, or remain liable to the extent of the original sanctioned amount under Section 133 of the Indian Contract Act, 1872 where the principal debtor overdrew funds in excess of the sanctioned cash-credit facility.

Analysis: Chapter VIII of the Indian Contract Act, 1872 governs guarantee and discharge of surety. Section 133 provides that any variance in the terms of the contract between principal-debtor and creditor made without the surety's consent discharges the surety as to transactions subsequent to the variance. Section 139 provides that a surety is discharged where the creditor does an act inconsistent with the surety's rights or omits a duty which results in impairment of the surety's eventual remedy against the principal-debtor. Applying these provisions to the facts, the principal-debtor was originally sanctioned a cash-credit facility of Rs. 4,00,000; amounts in excess were subsequently withdrawn without the sureties' consent. That overdraw constituted a variance in the original contract permitting discharge only as to transactions after the variance under Section 133. For Section 139 to apply, there must be not only an act inconsistent with the surety's rights but also impairment of the surety's eventual remedy against the principal-debtor; no such impairment is shown on these facts. Authorities establish that the creditor may proceed against sureties and need not first exhaust remedies against the principal-debtor, and that discharge under Section 133 operates only for transactions subsequent to unauthorized variation.

Conclusion: The sureties are liable to the extent of the original sanctioned amount of Rs. 4,00,000 with applicable interest and are not liable for amounts overdrawn without their consent; this conclusion is in favour of the Appellant.

---