Novation of Contract – Liablity of guarantors to repay loan – Temporary overdraft – Extension of time to repay without consent of the guarantors – Section 133 of the Contract Act.

On 20.7.1994, the Deputy Registrar, Cooperative Societies had granted certificate under Section 101 of the MCS Act, 1960,

Respondent Nos.1 to 3 had taken overdraft facility / term loan for two months I.e. upto 22.6.1992.  Respondent Nos.4 and 5 were guarantors.  On 18.7.1992, the borrowers had applied for extension to repay the loan.  Time was extended till September, 1992.

HELD that the question revolves around is whether extending the time to the principal debtor by the creditor is novation of the contract and hence, the guarantors are not bound by such a contract.  Admittedly, the consent of the guarantors was not obtained while extending the time.  Section 135 of the Contract provides for discharge of surety when creditor gives time to the principal debtor and that is the variance in terms of the contract under Section 133.   In other words, a novation of contract discharges the surety. There was a novation of contract without consent of the sureties and hence, they are not liable to repay the loan

.Judgment (Aurangabad Bench) dated 10.4.2024 in W.P.No.2856 of 1996 of Mohanlal Premji Ramani  Vs. Deogiri Nagar Cooperative Sahakari Bank Ltd, Aurangabad and others with connected writ petition