Supreme Court – Section 139 of the Contract Act – Discharge of the Surety on variation of the contract of creditor & borrower without knowledge of sureties.
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true that amounts far in excess of the Rs.4,00,000/- (Rupees Four Lakh Only) (that was initially sanctioned) were withdrawn by respondent No.6 from the appellant-Bank.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 be liable for has been exceeded. Under Section 133 of the Act, any modification of the contract between the creditor and the principal debtor, that 20 has been made without the consent of the sureties, cannot subsequently bind them. Critically, however, a plain reading of the said provision reveals that such discharge of the surety is not absolute in nature. The surety is discharged only in respect of transactions that occurred subsequent to the variance of the terms of the contract. Thus, the observation of the High Court in the impugned order that the sureties must either be liable for the entire loan amount or not at all is erroneous, as the discharge of the sureties in the instant case can only be in respect of the amounts in excess of the Rs.4,00,000/- (Rupees Four Lakhs Only) that were withdrawn as under Section 133 of the Act, as it is only these amounts that would constitute a variance of the contract. The said bifurcation that was deemed to be impermissible by the High Court is, in fact, mandated by the statute in order to determine the extent of the sureties’ liability as per Section 133 of the Act.
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.
Judgment dated 27.2.2026 of the Supreme Court in Civil Appeal No.3200 of 2016 of Bhagyalaxmi Cooperative Bank Ltd Vs. Babaldas Amtharam Patel and others
