IMPORTANT POINT
The liability of the surety/guarantor/indemnifier is co-extensive with the principal debtor and is governed by the same provisions of the Contract Act and the Limitation Act.

JUDGMENT :

In the instant case, various loans were provided to a group of people separately, based on a general contract of indemnity/guarantee/surety. On default of repayment of the amount so advanced, the creditor sued against the indemnifier without the juncture of principal debtors and it has resulted in a decree against the indemnifier/defendant, hence this appeal.

2. The learned counsel appearing for the respondent Adv.Sri.Paul Jacob advanced extensive arguments pertaining to the application of Order I Rule 10 C.P.C. and the expression “necessary party” and relied on the decisions rendered in (i) Mumbai International Airport Private Limited v. Regency Convention Centre and Hotels Private Limited & Ors [(2020) 7 SCC 417], (ii) Kasturi v. Iyyamperumal & Ors [(2005) 6 SCC 733] (iii) State Bank of India v. M/s Indexport Registered & Ors [(1992) 3 SCC 159], (iv) Bank of Bihar Ltd. v. Dr. Damodar Prasad & Anr. [AIR 1969 SC 297] (v) SKS Power Generation (Chattisgarh) Ltd. v. Canara Bank [2021 SCC OnLine Bom 1835 (High Court of Bombay)] (vi) Tom Thomas Olassayil & Anr. v. State Bank of India & Ors. [2016 SCC OnLine Ker 28198 (High Court of Kerala)](vii) Tom Thomas & Anr. v. SBI & Ors [SLP (C) No.179/2017 (order dated 27.03.2017)] (viii) SICOM Ltd. v. Balkrishna & Ors [2005 (2) Mh.L.J.(High Court of Bombay)] and (ix) Subramania Aiyar v. Gopala Aiyar & Ors [1909 SCC OnLine Mad. 80 (High Court of Madras)].

3. The principal debtors were not impleaded in the suit on the reason that by that time, the amount due became time barred as against the principal debtor. Thereon, based on the contract of indemnity executed by the defendant, a suit was filed for recovery of the said time barred debt against the guarantor claiming that the guarantee is a continuing guarantee and hence there is no question of limitation as against the guarantor/indemnifier.

4. On the nature of disputes involved, the following questions came up for consideration :

(i) What actually amounts to “mere forbearance to sue” for the purpose of Section 137 of the Contract Act ?

ii) Whether the omission or forbearance to sue against the principal debtor would discharge the guarantor/indemnifier from the liability ?

(iii) Whether the surety will stand discharged when the debt became barred by limitation as against the principal debtor ? Is there any difference in the legal position when there is a continuing guarantee or indemnity as against the surety/guarantor/indemnifier ?

(iv) What actually amounts to a “contract of continuing guarantee” or “contract of continuing indemnity” What would be the legal position as to the continuing guarantee or indemnity given by the surety/guarantor when there is forbearance to sue against the principal debtor ?

(v) What would be the legal position when the eventual remedy was frustrated or impaired by the act of creditor or the principal debtor ? Whether such impairment or frustration would relieve and discharge the guarantor/indemnifier from the liability ?

5. The expressions “surety”, “principal debtor”, “creditor” and “contract of guarantee” are defined under Section 126 of the Contract Act (hereinafter referred to as 'the Act'). A contract of guarantee is a contract to perform the promise or discharge a liability of a third person in case of his default. The person, who gives the guarantee is called the “surety”; the person in respect of whose default the guarantee is given is called the “principal debtor”; and the person to whom the guarantee is given is called “creditor”. There are only three entities viz., “surety”, “principal debtor” and “creditor” in a “contract of guarantee”. A contract of indemnity is defined under Section 124 of the Act, but the expression “continuing contract of indemnity” is not recognized or explained or defined anywhere in the Act. Instead, the expression “continuing guarantee” is defined under Section 129 of the Act, which stands for a guarantee which extend to series of transactions. The series of transactions so