Releasing One Co-Surety Doesn’t Discharge Others: Karnataka HC Summarises Legal Principles On Surety
The Karnataka High Court dismissed a Writ Petition filed against the dismissal of Applications by the Debt Recovery Tribunal (DRT), Bangalore.

The Karnataka High Court has summarised the legal principles on surety.
The Court was hearing a Writ Petition filed against the dismissal of Applications by the Debt Recovery Tribunal (DRT), Bangalore.
A Single Bench of Justice Hemant Chandangoudar summarised the following principles –
i. Releasing one joint promisor does not discharge the others.
ii. Releasing one co-surety does not discharge the others; they remain jointly and severally liable.
iii. A surety's liability begins as soon as the principal debtor's does.
iv. The creditor can choose to recover from either the principal debtor or any surety, in any order.
v. A surety cannot demand that the creditor pursue the principal debtor first before going after the surety.
vi. If a creditor formally releases a mortgagor surety, that surety is discharged.
vii A surety can only claim contribution from co-sureties after paying more than their share of the debt.
viii. A surety steps into the creditor's rights only after paying off the debt.
ix. A creditor only needs to disclose special or unusual details about the guarantee to the surety.
x. Co-sureties must share the debt equally among themselves based on their obligations.
Advocate Hegde V.S. appeared for the Petitioners while Advocate T.P. Muthanna appeared for the Respondents.
Brief Facts
In their Application, the Petitioners requested that the properties of the Respondents be included for issuing a recovery certificate under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). The Respondent Bank had approved credit facilities for the Petitioners and the properties of the Petitioners, co-borrowers, and guarantors were offered as security for the repayment of these loans. Thereafter, the term loan limit was reduced from Rs. 200 lakhs to Rs. 60 lakhs and the properties of the Respondents were released. After the borrower defaulted on the loan repayment, the Respondent Bank filed an Application under Section 19 of RDDBFI Act before the DRT, seeking a recovery certificate. Thus, a total of Rs. 10,31,83,191/- was claimed from the Petitioners along with others including the Respondent sureties who had provided equitable mortgages to secure the Petitioners’ and other borrowers’ loans through a Memorandum of Deposit of Title Deeds and an Extension of Memorandum of Deposit of Title Deeds.
The case was pending and the Petitioners filed an Application under Sections 22 and 19(25) of RDDBFI Act, requesting the inclusion of the properties which were left out. The DRT allowed the Application while granting the Bank the right to submit an additional written statement, however, the Bank filed an Application seeking to recall the Order and the same was allowed. The DRT re-examined the same and then dismissed the plea seeking the inclusion of the Respondents’ properties. The entire loan taken by the Petitioners was assigned to the Respondent company via an agreement. Challenging DRT’s Order, the Petitioners approached the High Court.
Reasoning
The High Court in view of the above facts, observed, “In this case, Respondent Nos. 2 and 3 provided guarantees secured by equitable mortgages (depositing property title deeds with the bank). However, the bank acknowledges that these guarantees ended when the loan was renewed on 08.03.2007, and the title deeds were returned.”
The Court noted that the contract of guarantee via execution of equitable mortgage came to a close upon the return of the title deeds of the property to the Respondent No. 2.
“However, if it were to be held that a contract of guarantee continued to remain in subsistence, the release of certain properties belonging to the Petitioner No. 2 would ipso facto grant Respondent No.2 the right to avoid his obligation to guarantee the principal debt in light of material alteration of the principal contract between the Respondent-Bank and the principal debtor and the managing partner thereof. It is settled principle of law propounded in the case of Croydon Gas v. Dickinson (1876) 3 CPD 46, 49 that any dealing by the principals together so as to effect the position of the surety to his prejudice discharges the latter”, it said.
The Court added that, if any life were to be breathed into an otherwise concluded contract of guarantee, in light of the fact that the value of the released properties belonging to the Petitioner No. 2 remains exactly unknown, but is certain to be in excess of Rs. 75.60 lakhs, it would be but equitable in the present circumstances to preclude the Petitioner - Principal Debtor from seeking to include the said property of the co-surety i.e., the Respondent No.2 in the recovery proceedings before the DRT.
Accordingly, the High Court dismissed the Writ Petition.
Cause Title- M/s. SSA Constructions & Anr. v. Andra Bank & Ors. (Neutral Citation: 2024:KHC:41038)
Appearance:
Petitioners: Advocate V.S. Hegde
Respondents: Advocates T.P. Muthanna and Sivarama Krishnan.