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In Bhagyalaxmi Co-operative Bank Ltd. v. Babaldas Amtharam Patel & Ors., the Supreme Court of India clarifies the extent of a surety’s liability under the Indian Contract Act, 1872.
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In Bhagyalaxmi Co-operative Bank Ltd. v. Babaldas Amtharam Patel & Ors., the Supreme Court of India clarifies the extent of a surety’s liability under the Indian Contract Act, 1872. The Court held that where a creditor allows a borrower to exceed the sanctioned loan limit without the guarantor’s consent, it constitutes a “variance” under Section 133, discharging the surety only for the excess amount not the entire debt. Rejecting the “all or nothing” approach, the Court ruled that guarantors remain liable up to the original sanctioned limit, while additional liability incurred without consent cannot be enforced against them. The judgment also clarifies that Section 139 applies only where the surety’s remedy is actually impaired, reinforcing fairness and certainty in guarantee contracts.
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