Contracts Project

TAMIL NADU NATIONAL LAW UNIVERSITY
(A State University established by Act No. 9 of 2012)
Navalur Kuttapattu, Srirangam (TK), Tiruchirappalli – 620009, Tamil Nadu
TOPIC: RIGHTS OF SURITIES AGAINST PRINCIPAL DEBTORS
SUBJECT: LAW OF CONTRACTS - II
SUBMITTED BY:
ABISHEK K
BC0230002
SUBMITTED TO:
DR.DEEPIKA
Assistant Professor
Tamil Nadu National Law University

INTRODUCTION:
Suretyship refers to that very important element of the law of contract that provides for a
third-party guarantee of the performance of the obligation by the principal debtor. The rights
of sureties against the principal debtors lie at the very centre of the understanding and
working of suretyship. As Lord Eldon expressed it in Ex parte Rushforth, "The contract of
suretyship imports confidence reposed by the surety in the principal debtor 1 ." This research
explores these rights, both in their nature and extent, from the appropriate legal provisions,
case laws, and theoretical underpinnings.
Suretyship is burdened with various types of rights, such as the right to indemnity,
subrogation, and contribution. All these rights are purporting to ensure that the surety gets
adequately compensated for any loss arising on account of the default of the principal debtor.
The contractual obligations and rights of sureties have been very elaborately expounded upon
by the Indian Contract Act, 1872, under Sections 126 to 147. Though the Act provides an
effective platform for the protection of the rights of sureties, their enforcement in practice is
pretty challenging.
Sureties' rights have been interpreted in a number of leading cases. In Amrit Lal Goverdhan
Lalan v. State Bank of Travancore 2, the Indian Supreme Court held that a surety has a right to
be indemnified by the principal debtor in case he makes any payment on behalf of the debtor.
Likewise, in State Bank of India v. M/s. Index port Registered Subrogation was granted by
the court, in payment of the debt, to stand in the shoes of the creditor.
Other significant cases include:
 Bank of Bihar Ltd. v. Damodar Prasad3: Reinforced the surety’s right to insist on the
creditor suing the principal debtor before proceeding against the surety.
 National Project Construction Corporation Ltd. v. Sandhu & Co 3. : Discussed the extent
of the surety's liability and the right to seek recovery from the principal debtor.
 Union Bank of India v. Manku Narayana4 : Highlighted the principle that a surety is
discharged if the creditor acts against the interests of the surety.
1 Ex parte rushforth, (1805) 10 Ves Jr 409
2 Amrit lal Goverdhan Lalan vs. State bank of Travancore, Air 1960 SC 1432
3
Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297.
3 National Project Construction Corporation Ltd. v. Sandhu & Co., AIR 1994 SC 98.
 The Bank of Rajasthan Ltd. v. Smt. Phool Devi and Ors 5: Clarified the rights of
sureties in the context of joint liabilities and contribution.
RESEARCH PROBLEM
The central research problem is to analyse and elucidate the specific rights that sureties have
against principal debtors, including the right to indemnity, subrogation, and contribution. The
study will also address the limitations and enforceability of these rights in practical scenarios.
RESEARCH QUESTIONS:
1. What are the primary rights of a surety under the Indian Contract Act, 1872?
2. Protection Provided by Right of Subrogation to Surety: This right of subrogation protects

the surety by:
3. Some of the problems which may be encountered by a surety when he tries to exercise his
rights against his principal debtor are as follows
OBJECTIVES
1. The legal framework in which the rights of sureties are determined is provided.
2. The analysis of the case law application to further indicate the practical operation of these
rights.
3. To identify the challenges sureties face in the exercise of their rights.
4. To suggest possible reforms so that sureties may be better protected.
LIMITATIONS
The research is limited to the rights of sureties under Indian contract law, with some
comparative analysis with other common law jurisdictions. The practical enforcement of
these rights is examined within the constraints of judicial precedents and statutory
interpretations.
1. Rights available against debtors:
4 Union Bank of India v. Manku Narayana, AIR 1987 SC 1078.
5 The Bank of Rajasthan Ltd. v. Smt. Phool Devi and Ors., AIR 2009 SC 2608.
2. Recent Case Law Analysis:
Conclusion
The present research seeks to undertake a comprehensive review of the rights of sureties
against principal debtors with regard to legal nuances and practical challenges. The basic
objective of the study is thus to contribute toward a proper understanding of improving the
legal framework for sureties with respect to statutory provisions and case laws.
References
1. Ex parte Rushforth, (1805) 10 Ves Jr 409.
2. Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1960 SC 1432.
3. State Bank of India v. M/s. Indexport Registered, AIR 1992 SC 1740.
4. Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297.
5. National Project Construction Corporation Ltd. v. Sandhu & Co., AIR 1994 SC 98.
6. Union Bank of India v. Manku Narayana, AIR 1987 SC 1078.
7. The Bank of Rajasthan Ltd. v. Smt. Phool Devi and Ors., AIR 2009 SC 2608.
8. Anson's Law of Contract (28th Edition).
9. Clive M. Schmitthoff, Suretyship and Guarantee.

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TAMIL NADU NATIONAL LAW UNIVERSITY

(A State University established by Act No. 9 of 2012)

Navalur Kuttapattu, Srirangam (TK), Tiruchirappalli – 620009, Tamil Nadu

TOPIC: RIGHTS OF SURITIES AGAINST PRINCIPAL DEBTORS

SUBJECT: LAW OF CONTRACTS - II

Tamil Nadu National Law University

Other significant cases include:

2. Protection Provided by Right of Subrogation to Surety: This right of subrogation protects

3. To identify the challenges sureties face in the exercise of their rights.

4. To suggest possible reforms so that sureties may be better protected.

1. Rights available against debtors:

4 Union Bank of India v. Manku Narayana, AIR 1987 SC 1078.

1. Ex parte Rushforth, (1805) 10 Ves Jr 409.

3. State Bank of India v. M/s. Indexport Registered, AIR 1992 SC 1740.

4. Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297.

6. Union Bank of India v. Manku Narayana, AIR 1987 SC 1078.

8. Anson's Law of Contract (28th Edition).

9. Clive M. Schmitthoff, Suretyship and Guarantee.

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