The acknowledgment by the principal debtor does not discharge the surety's collateral obligation, and the surety's liability remains enforceable unless discharged under the provisions of the Contract Act.

1. This is a claim by a company in liquidation for the balance of the kuri prize money drawn by the 1st respondent. The prize money was paid on 23-4-70 when the 1st respondent, along with the second, executed a promissory note for the amount in favour of the company, and also an agreement whereunder the 2nd respondent, as surety, guaranteed repayment. The Ist respondent also executed a receipt for the amount. The claim is based on the promissory note, the original consideration and the contract of guarantee.

2. The first respondent has been examined; he admits the liability, his only case being that he is entitled to be discharged under S.3 of the Kerala Debt Relief Act, 1977. Ext. Al report filed by the local Inspector attached to the Liquidator's office supports this case. The annual income of the 1st respondent is estimated to be only Rs. 250/-. The claim is also for an amount below Rs. 3000/-. The first respondent is thus admittedly entitled to discharge.

3. The 2nd respondent has raised the following plea in paragraph (3) of his counter affidavit:

"The first respondent executed a Promissory note on 23 41970 in favour of the company to which I was a surety. The claim under the said promissory note was barred by limitation on 23 41973. However before 23 41973, the company in liquidation, approached the 1st respondent and got a fresh endorsement on the pronote to which I am not a party. The fresh endorsement on the said promissory note by the 1st respondent was without my knowledge and consent, as a result the entire character of the document was altered and thus, as a surety my liabilities with respect to the said document stands discharged."

The argument on his behalf is that under S.18 of the Limitation Act, 1963 the acknowledgment can save limitation only against the 1st respondent, and not against the 2nd. S.20(2) of the Act is also pressed into service to urge that the principal debtor's acknowledgment could keep the liability alive only as against him, and not against other "joint contractors, partners, executors or mortgagees" chargeable only by reason of such acknowledgment.

4. In Popular Bank Ltd. v. The United Coir Factories and others (1961 KLT. 434), this Court had rejected a similar contention when Raman Nayar J. (as he then was) observed:

"It seems clear that in respect of any debt incurred by the principal during the currency of the guarantee, the surety is liable so long as the debt is recoverable from principal. It does not matter that the principal has kept the debt alive by acknowledgments under S.19 of the Limitation Act or by payments under S.20, for by these acts, there is no renewal of the debt, and no new debt created which is not covered by the guarantee. The debt remains the same namely, the debt guaranteed;

only the bar of time against recovery is postponed. S.21(2) of the Limitation Act has no bearing, for, a mere surety is not a joint contractor. His is a separate and collateral contract for the purpose of ensuring that the principal keeps his contract."

But it is urged that many other High Courts have been taking a different view, and that the matter requires further consideration.

5. Under S.126 of the Contract Act, a surety is one who guarantees to perform the promise or discharge the liability of a third person in case of his default. Under S 128, the surety's liability is co-extensive with that of the principal debtor unless it is otherwise provided in the contract. S.133 provides that a variance in the terms of the contract between the principal debtor and the creditor will discharge the surety. Under S.134, the surety gets a discharge if the creditor enters into a contract with the principal debtor to discharge the latter. The same is the effect, under S.135, when the creditor and the principal debtor enter into a contract by which the creditor makes a composition with the debtor, or promises to give him time or not to sue (unless, of course, the surety also assents to such a contract)