Whether guarantor can waive rights granted under contract Act?

"We are of the view that as the provisions contained in Chapter VII of the Act relating to Indemnity and Guarantee, they deal with one subject and they are to be read together. The liability of the surety as stated in general terms in section 128 of the Act is no doubt coextensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because section 128 of the Act itself specifically provides that the liability of a surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. Thus the liability of the surety is subject to the terms of the contract as may be arrived at between the parties. The words "unless it is otherwise provided in the contract" occurring in section 128 of the Act will also govern the other provisions contained in Chapter VIII of the Act and enable the surety to give up the rights available to him under sections 133, 134, 135, 139 and 141 of Act. It is a settled legal position of law that a legal right can be given up provided such giving up of a legal rights under any contract is not hit by section 23 of the Act. Section 133 of the Act makes it clear that any variance made in the contract between the principal debtor and the creditor without the consent of the surety, discharges the surety as to the transactions subsequent to variance. This consent of the surety can be obtained either at the time the contract is made between the principal debtor and the creditor to which the surety gives the guarantee for making any change or alteration in the contract to be made or not to claim any right or benefit under Chapter VIII of the Act. In other words, in the surety-bond/guarantee-bond itself the surety can agree to waive his rights available to him under the various provisions contained in Chapter 8 of the act. Such waving of his right by the surety is permissible under sections 133 read with section 128 of the Act."

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Miscellaneous First Appeal No. 4140 of 2010 (SFC)

Decided On: 25.02.2019

Karnataka State Industrial Investment and Development Corporation Limited Vs  G.C. Lohia and Ors.

Hon'ble Judges/Coram:

Ravi V. Malimath and B.M. Shyam Prasad, JJ.

Citation: AIR 2019 Karn 80

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Whether surety is discharged if there is material alteration in contract of guarantee without his consent?

The true rule, in . my opinion, applicable to the contract of guarantee is that if there is any agreement between the principals with reference to the contract of guarantee, the surety ought to be consulted. If the alteration is to the disadvantage of the surety, or its unsubstantial nature is not self-evident, the surety can claim to be discharged. The contract of the surety should not be altered without his consent and the creditor should not undertake to alter the contract and then say, that though the contract had been altered, it was not done to the disadvantage of the surety, especially when such alterations were made with respect to material particulars regarding the contract of guarantee affecting the surety.

Madras High Court

S. Perumal Reddiar vs Bank Of Baroda By Its Power Of ... on 7 March, 1980

Equivalent citations: (1981) 1 MLJ 419,AIR1981Mad180

Author: S Swamikkannu

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