IMPORTANT POINTS
(1) Liability of Surety – Liability of surety is co-extensive with that of principal-debtor, unless contract of guarantee provides otherwise – Liability of surety extends only to what contract he guaranteed and not something for which he had not contracted for.
(2) Discharge of Surety – Surety is discharged only in respect of transactions that occurred subsequent to variance of terms of contract.

JUDGMENT :

B.V. NAGARATHNA, J.

Briefly stated, the facts of the case are that on 30.10.1993, M/s Darshak Trading Company, respondent No.6 herein, obtained a cash-credit facility for withdrawal of Rs.4,00,000/- (Rupees Four Lakhs Only) as a loan from Bhagyalakshmi Co-Operative Bank Ltd., the appellant herein. Mercantile goods belonging to respondent No.6 were hypothecated to the appellant. Respondent Nos.1 and 2 herein, stood as guarantors/sureties for the said loan obtained by respondent No.6 and executed contracts of guarantee in favour of the appellant. It is the case of the appellant that respondent No.6 in connivance with some officers employed by the appellant withdrew amounts far in excess of the Rs.4,00,000/- (Rupees Four Lakhs Only) that had been sanctioned.

1.1 Respondent No.6 defaulted in repaying the loan to the appellant. As a consequence, the appellant filed Lavad Suit No.181/1995 before the Board of Nominees, seeking to recover a sum of Rs.26,95,196.75/- (Rupees Twenty Six Lakhs, Ninety-Five Thousands, One Hundred Ninety-Six and Seventy-Five Paise Only) along with interest from respondent No.6. The borrower, respondent No.6 was arrayed as defendant No.1 and respondent Nos.1 and 2 herein, as sureties, were arrayed as defendant Nos.2 and 3 in Lavad Suit No.181/1995. By judgment dated 09.07.2001, the Board of Nominees decreed the suit and accepted the claim of the appellant only as regards respondent No.6 who was the principal borrower to the extent of the Rs.26,95.196.75/- (Rupees Twenty-Six Lakhs, Ninety-Five Thousand, One Hundred Ninety-Six and Seventy-Five Paise Only). The said amount was directed to be recovered from respondent No.6 along with interest from 01.10.1994 at the rate of 21% per annum. However, the suit against respondents Nos.1 and 2 as sureties came to be dismissed by the Board of Nominees and the restraint order against their properties came to be vacated.

1.2 Challenging the judgment of the Board of Nominees dated 09.07.2001, the appellant preferred an appeal before the Gujarat State Co-Operative Tribunal in Appeal No.552/2001. By order dated 31.01.2007, the Gujarat State Co-Operative Tribunal allowed the appeal of the Bank and directed the recovery of Rs.4,00,000/- (Rupees Four Lakhs Only) along with interest against respondent Nos.1 and 2 herein as sureties. An injunction also came to be issued by the said Tribunal against the sureties, restraining them from alienating their immoveable properties.

1.3 The order of the Gujarat State Co-Operative Tribunal came to be challenged by respondent Nos.1 and 2 herein in Special Civil Application No.17125/2007 before the High Court of Gujarat at Ahmedabad. By the impugned order dated 25.06.2008, the High Court allowed the said writ petition. This was on the basis that the Gujarat State Co-Operative Tribunal erred in holding that respondents Nos.1 and 2 would be liable for the loan as sureties, when it was the appellant that had permitted respondent No.6 to withdraw amounts in excess of the loan initially sanctioned. That under Section 139 of the Indian Contract Act, 1872, (for short, “the Act”), a surety would stand discharged if there was lapse on the part of the creditor and hence, the sureties could either only be held liable as to the entire loan amount or not at all. That there could be no bifurcation in terms of liability of the sureties as regards the loan amount that was initially sanctioned and the overdrawn amounts.

1.4 Hence, the instant civil appeal by the appellant-Bank.

Submissions:

2. Learned senior counsel Sri Raghavendra S. Srivatsa appearing for the appellant submitted that the High Court was not right in holding that under Section 133 of the Act, the sureties are liable for the entire amount or none at all. He drew our attention to Section 133 of the Act, which states that any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subseq