RIGHTS OF SURETY

RIGHTS OF SURETY AGAINST PRINCIPAL DEBTOR

Rights of subrogation (section 140) 

According to section 140 of Indian Contract Act, when the surety made the necessary payment or make performance of all what he is liable for, he is invested with all the rights which the creditor has against the principal debtor. In the other words, the surety steps into the shoes of the creditor and by the action against the principal debtor, could recover all what can be recovered by the creditor from the principal debtor. He can be indemnified by the principal debtor for all what he rightly paid and aslo he is entitled to the benefit of all the securities, creditor has against the principal debtor at the time of contract of suretyship is entered into. 

Right of indemnity against the principal debtor (section 145). 

According to section 145, after the payment of liability by the surety, due to the the default of principal debtor, the surety can recover from the principal debtor all what he has rightly paid. It is to be noted here that the surety need not be indemnified by the principal debtor for all what he has wrongfully paid. In C.K. Aboobacker v. K.P. Ayishu, it has been held by the Kerela High Court that the guarantors is liable only to the extent the principal debtor has defaulted. 


RIGHT OF SURETY AGAINST CREDITOR

Rights of securities with the creditor (section 141)

According to section 141, the surety is entitled, after the payment of the dues, to all the securities which the creditor has against the principal debtor at the time the contract of suretyship is entered into. If the creditor by negligence looses the security, this amounts to the discharge of the surety to that extent. 

However it is important to note that surety is entitled to only those securities which the creditor has at the time of contract of guarantee, and not afterwards. This position is different from that in England, where the surety is entitled to all the securities the creditor has against the principal debtor. 

When the surety who guarantees the part of the debt, did all the needful in discharging his liability, will he be entitled to the security to that amount. Position of different High Courts differs in this issue. Fir instance Bombay High Court in Goverdhan Das v. Bank of Bengal, ruled that creditor's right to security paramount the surety's claim over them. However, Madras High Court in Bhushayya v. Suryanarayana, held that the surety after discharging his liability should be entitled to the proportionate security.


RIGHTS OF THE SURETY AGAINST CO-SURETIES

Right of contribution against co-sureties (section 146 and 147)

According to section 146, the co sureties are liable to pay equally untill they contracted to the contrary. It is immaterial that whether the sureties undertaken a duty either jointly or severally, under the same contract or different contract, with or without the knowledge of each other. If some of the co sureties paid more than there liability, they can recover the amount from rest of the co-sureties.

Section 147 provides for the co sureties bound in the different sum. Co-sureties may bound themselves to maximum sum upto which their liability can go. 

However it is important to note here that even if one of the co-sureties is released from the liabilities, the other co surety still remain liable (Anil Kumar v. Central Bank of India). 



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