Sections 139 and 141 of the MC Societies Act – Discharge of Surety from Loan Liability

Judgment dated 11.11.2025 of the High Court of Bombay in Writ Petition No.2679 of 2023 of The TJSB Sahakari Bank Ltd  Vs. Amritlal P. Shah and others

Sections 139 and 141 of the MC Societies Act – Discharge of Surety from Loan Liability

Respondent No.1 Multi State Cooperative Bank had given various financial facilities to respondent nos.3 to 5 borrowers.   Respondent no.1 was guarantor.

The Cooperative Appellate Court allowed the appeal of the guarantor on the ground that the borrowers had sold the hypothecated stock-in-trade in breach of the hypothecated agreement.

HELD that the disappearance or sale of hypothecated goods is not enough.   The surety is discharged and when the creditor had a duty under the contract to protect the goods and failed to do so.   If the contract leaves physical possession with the borrower and gives the creditor only the right to impose and enforce, then the creditor is not at fault merely because the borrower disposed of the goods.   The Court must see whether the creditor was required to take care of the goods and whether the creditor remained negligent.

There is no clause which states that the Bank must guard the goods or must take physical steps to prevent removal.  The bank issued a demand notice within time and filed recovery proceeding.  The bank did not sleep over its rights.

The disappearance of goods without proof of a breach of duty by the bank, cannot release the surety.

Surety is discharged only if creditor’s act / omission impairs surety’s remedy or loses security.