TaxTMI 
TaxTMI 
2026 (3) TMI 7
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted contracts of guarantee in favour of the appellant. It is the case of the appellant that respondent No. 6 in connivance with some officers employed by the appellant withdrew amounts far in excess of the Rs. 4,00,000/- (Rupees Four Lakhs Only) that had been sanctioned. 1.1 Respondent No. 6 defaulted in repaying the loan to the appellant. As a consequence, the appellant filed Lavad Suit No. 181/1995 before the Board of Nominees, seeking to recover a sum of Rs. 26,95,196.75/- (Rupees Twenty Six Lakhs, Ninety-Five Thousands, One Hundred Ninety-Six and Seventy-Five Paise Only) along with interest from respondent No. 6. The borrower, respondent No. 6 was arrayed as defendant No. 1 and respondent Nos. 1 and 2 herein, as sureties, were arrayed as defendant Nos. 2 and 3 in Lavad Suit No. 181/1995. By judgment dated 09.07.2001, the Board of Nominees decreed the suit and accepted the claim of the appellant only as regards respondent No. 6 who was the principal borrower to the extent of the Rs.26,95.196.75/- (Rupees Twenty-Six Lakhs, Ninety-Five Thousand, One Hundred Ninety-Six and Seventy-Five Paise Only). The said amount was directed to be recovered from respondent No. 6 along with int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e following judgments: a) Radha Kanta Pal vs. United Bank of India Ltd., AIR 1955 Cal 217 ("Radha Kanta Pal"); b) Bishwanath Agarwala vs. State Bank of India, AIR 2005 Jhar 69 ("Bishwanath Agarwala"); c) State Bank of India vs. M/s Indexport Registered, (1992) 3 SCC 159 ("M/s Indexport Registered"); d) Syndicate Bank vs. Channaveerappa Beleri, (2006) 11 SCC 506 ("Channaveerappa Beleri"); e) H.R. Basavaraj (Dead) by his LRs vs. Canara Bank, (2010) 12 SCC 458 ("Basavaraj"); and f) T. Raju Setty vs. Bank of Baroda, AIR 1992 Kar 108 ("Raju Setty"). 2.1 Learned senior counsel further submitted that having regard to the facts of the present case, the Bank being the creditor is entitled to recover the outstanding dues from the sureties till the time when the variation in the contract occurred. However, for the subsequent dues pursuant to the variation of the contract, which was without the consent of the sureties, the sureties may not be liable. He therefore submitted that having regard to the dicta of this Court as well as of the Karnataka High Court in Raju Setty, the impugned judgment may be set-aside and the relief may be grante....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ideration for guarantee while Section 128 of the Act deals with surety's liability. The liability of the surety is co- extensive with that of the principal-debtor, unless the contract of guarantee provides otherwise, is what Section 128 of the Act states. Discharge of surety is dealt with under Sections 133 to 139 of the Act. 4.2 Sections 133 and 139 of the Act read as under: "133.Discharge of surety by variance in terms of contract.- Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. xxx "139. Discharge of surety by creditor's act or omission impairing surety's eventual remedy.-If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged." 4.3 In this case, we are concerned with discharge of surety. While learned senior counsel for the appellant has placed reliance on Section 133 of the Act, learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... However, the guarantor is not discharged by any variation of the principal contract made with his consent. The consent has to be proved by the person who seeks to enforce the guarantee. A stipulation in a contract of guarantee whereby the surety purports to waive all his rights, legal, equitable, statutory or otherwise, which may be inconsistent with the guarantee, will not deprive him of his right to discharge under Section 133 of the Act. 4.7 In Basavaraj, it was observed that the surety can waive all rights available to him under Chapter VIII of the Act because these are advantages for his benefit. The surety continues to be liable for transactions effected before such variation. The surety is discharged as to the transactions subsequent to the variance. In this judgment, it was observed that anyone has a right to waive the advantages offered by law provided they have been made for the sole benefit of an individual in his private capacity and do not infringe upon the public rights or public policies. As a general rule, any person can enter into a binding contract to waive the benefits conferred upon him by an Act of Parliament, or, as it is said, can contract himself out of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....properties vide Ram Prasad vs. Gordhan, AIR 1934 All 616. (iv) where the creditor bank which had advanced loan for the purchase of a vehicle failed to register the charge with the Regional Transport Office vide Jose Inacio Lourence vs. Syndicate Bank, (1989) 65 Com Cas 698. (v) where the creditor in a contract for sale or a tea garden failed to execute the conveyance of the property to purchaser, payment of price by whom had been guaranteed by the surety vide Probodh Kumar Das vs. Gillanders Arbuthnot & Co., AIR 1934 Cal 699. (vi) Where the creditor prepays any instalment of payment before the debtor had rendered that performance upon which the payment fell due vide Calvert vs. London Dock Co., (1838) 2 Keen 638. [Source: Pollock and Mulla on the Indian Contract & Specific Relief Acts, 16th Edition] 5. In the case of Radha Kanta Pal, the predecessor of the plaintiff before the High Court had signed a bond with one Comilla Banking Corporation Limited that had since amalgamated with and was represented by the defendant-Bank. By virtue of this bond, in consideration of the appointment of his relation to the post of cashier and in consideration fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....everal. However, while the guarantor would still be liable to the extent of the earlier-borrowed Rs.2,50,000/-, he would not be bound by the overdrawn amounts permitted by the Bank and availed of by the principal debtor, i.e. that the surety would only be discharged in respect of transactions subsequent to the variance of the contract. 5.2 In the case of M/s Indexport Registered, a three-Judge Bench of this Court upheld the salient principle that the liability of the surety is co-extensive with that of the principal debtor and that the creditor was not required to exhaust his remedies as against the principal debtor necessarily before proceeding against the sureties to recover the loan amount, and the guarantor can even be proceeded against first. 5.3 In the case of Channaveerappa Beleri, a two-Judge Bench of this Court observed that the liability of the guarantor and the question as to when it would arise would depend entirely on the terms of his contract, and the guarantee itself could be in the nature of a continuing guarantee, an ordinary guarantee, may stipulate that the guarantor is liable to pay only on demand by the creditor and may limit the liability of the guaranto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the principal, impair the eventual remedy of the surety against him. For instance, a surety will be released if the creditor, due to what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands. However, where the creditor withdrew the suit against the principal-debtor, but continued the suit against the surety, the latter was not discharged because his remedy against the principal-debtor was not impaired. 7. In the instant case, the undisputed facts are that respondent No. 6 obtained a cash-credit facility for withdrawal of Rs. 4,00,000/- (Rupees Four Lakh Only). It is to the extent of this amount alone that respondent Nos. 1 and 2 herein stood as sureties. Whether by virtue of allegedly conniving with employees of the Bank or otherwise, it is admittedly true that amounts far in excess of the Rs. 4,00,000/- (Rupees Four Lakh Only) (that was initially sanctioned) were withdrawn by respondent No. 6 from the appellant-Bank. This functions as a fundamental variation of the terms of the initial contract of guarantee, wherein the extent of the liability to which respondent Nos. 1 and 2 consented to b....