The guarantor of a loan is liable to pay it if the debtor fails to clear it, the Supreme Court has ruled, while maintaining that financial institutions too cannot act like property dealers in recovering the debts.  The apex court gave the ruling on an appeal by one Ganga Kishun, who had stood as a guarantor to a bank loan, raised by one Ganga Prasad, who had died without clearing it. Ganga Kishun had come to the apex court against the Uttar Pradesh government’s decision to recover the loan arrears from him after the death of principal debtor Ganga Prasad.

A bench of justices BS Chauhan and Dipak Misra also said the guarantor cannot insist that the creditor must first exhaust all remedies against the principal debtor before recovering the debts from the surety holders.

Online GST Certification Course by TaxGuru & MSME- Click here to Join

“There can be no dispute to the settled legal proposition that in view of the provisions of Section 128 of the Indian Contract Act, 1872, the liability of the guarantor / surety is co-extensive with that of the debtor.

“Therefore, the creditor has a right to obtain a decree against the surety and the principal debtor.

“The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/ guarantor to see whether the principal debtor has paid or not,” said Justice Chauhan, writing the judgement for the bench.

While dismissing Ganga Kishun’s appeal, the apex court, however, faulted the government’s decision to auction Ganga Kishun’s entire stretch of land for Rs 25,000 to recover an arrear worth Rs 8,500 only and not confining the auction to only 1/3rd of the land which could have fetched the arrears.

More Under Corporate Law

Posted Under

Category : Corporate Law (3434)
Type : Featured (4133) News (12609)

0 responses to “Guarantors to pay if debtors default – SC”

  1. SOMADUTTA PUROHIT says:

    What is new in it. Its a fact of law which should not be challenged but volume of liability should be considered in special circumstances where the debtor it self mischief the guarantor taking the undue advantage of his good faith.

  2. VIRAL SHUKLA says:

    I was reading through the post and tried searching the full text judgement but was not able to find it. Can you please email it to me as this write up is interesting and very useful.

    Thank you,

    Regards
    ADV. VIRAL SHUKLA

  3. subhash Kulkarni says:

    my e-mail Id. : adv.suku@gmail.com

  4. subhash Kulkarni says:

    there are number of articles from 29th may, 6pm till date. No one could even provide the date of the S.C. decision. I checked SC website. Please provide date atleast.

  5. Ritesh Sharma says:

    can any1 plss give me the citation of the this judgment or email the same to me ritesh.sharma@airtelmail.in

  6. CA. Subhash Chandra Podder ,FCA. says:

    A very good decision. As per the contract Act, the guarantor is equally liable to the principal creditor.
    CA. Subhash Chandra Podder ,FCA.
    Kolkata
    31/05/2012

Leave a Reply

Your email address will not be published. Required fields are marked *