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1.

THAT THE RESPONDENTS HAVE COMMITTED FRAUD BY VARYING THE


TERMS OF THE CONTRACT OF GUARANTEE WITHOUT THE CONSENT OF THE
APPELLANT.
1.1. The respondents have committed fraud in the instant case.

Section 17 of the Act defines fraud as –

“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agents, with intent to deceive another party thereto his agent,
or to induce him to enter into the contract.1

In the instant case the appellant argues that he shared a fiduciary relationship with the
respondent as he was his very close friend and hence he was ready to give surety on his behalf of
such a huge amount of 50 crores. But later on when the terms of the contract were varied and he
was not even without him being informed, he considered this as a fraud on their part as he was
also a party to the contract and needed to be informed of such an important alteration. So the
counsel pleads that such variations in the terms of the contract without informing the appellant is
fraud.

Hence the appellant is discharged from the liability to pay on behalf of the principal debtor,

As according to section 133 of the Indian Contract Act-

Any variance, made without the surety’s consent, in the terms of the contract between the
principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the
variance. —Any variance, made without the surety’s consent, in the terms of the contract
between the principal [debtor] and the creditor, discharges the surety as to transactions
subsequent to the variance.2

The strictness of the rule was that any alteration without the surety's consent even for his benefit
will discharge the surety, tempered in subsequent cases and was departed from in Aldous v.
Carnwill3.

1
Indian Contract Act, 1872 § 17.
2
Indian Contract Act, 1872 § 133.
3
(1868) 3 Q.B.O. 573.
It should be noted here that the Holmes v. Brunskill4 decision, provides that any varaince made
without the surety's consent in tne terms of the contract between the principal debtor and the
creditor, discharges the surety as to transactions subsequent to the variance. The section 133
makes no distinction between a variation that is to the advantage of the surety and one that goes
against him.
As in this case the variation in the amount was varied from 50 crores to 25 crores , which is
although not in loss of the appellant then too the major issue here is that the fraud committed by
the respondent by the variance of the terms without taking into consideration that whether it is
for advantage or disadvantage of the surety.
If the surety is not informed of the new arrangement of the contract intentionally which is
commitment of fraud on behalf of the defendant. While the general principle is that if the
agreement of the surety is altered in a single line, the surety in entitled to be discharged.5
Guarantor is released from liability under a guarantee given to a creditor where that creditor and
the principal debtor have entered into an agreement, subsequent to the giving of the guarantee,
which has the effect of altering the contractual position between them, without his prior consent.6

1.2. Variance in terms of contract without the consent of the appellant.

As per section 133 of the Indian Contract Act, 1872;

Any variance, made without the surety’s consent, in the terms of the contract between the
principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the
variance. —Any variance, made without the surety’s consent, in the terms of the contract
between the principal [debtor] and the creditor, discharges the surety as to transactions
subsequent to the variance.7

The principle of the law of the discharge of sureties by virtue of this section is that the surety
cannot be held bound to do something for which he has not contracted or consented.8

In the instant case the terms of the contract were varied between the creditor(bank) and Sudeep.
Shaleen signs the contract knowing that he has to become surety for the amount 50 crores.But

4
(1878) 4 Cal, 331 ( P.C.)
5
Bonar v.Macdonald(1850) 3 H.L.C. 226.
6
Holme v Burnskill(1877) 3 Q.B.D.495.
7
Supra note 2.
8
(State Bank Of India vs Dharam Kumar And Anr., 2000 102 CompCas 166 Mad, (1998) IIMLJ 774)
afterwards bank while processing the loan comes to know about a circular that NRI’s cannot be
surety of principal debtors in India and that to of 50 crores and intead the bank can sanction loan
upto 25 crores to individual debtors, hence, the amount was reduced to 25 crores by Sudeep.This
information of variance in the terms was not conveyed to Shaleen and through the above section
it is clear that the surety is discharged from liability when, without his consent, the creditor
makes any change in the terms of his contract with the principal debtor (no matter whether the
variation is beneficial to the surety or is made innocently or does not materially affect the
position of the surety) because a surety is liable only for what he has undertaken in the contract.

The slightest variation in the terms of a guarantee unless agreed to would discharge ex instatnti
the responsibility from being liable under the engagement.9 The principle is that surety, like any
other contracting party cannot held bound to something for which he has not contracted.10

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the
original contract would not be performed. Under section 133 of the Indian Contract Act, 1872
any variance , made without the surety’s consent in the terms of the contract between the
principal debtor and the creditor , discharges the surety as to the transactions subsequent to the
variance.11

If while the instruments of guarantee is in the hands of the party to whom it was given, it is
altered in any material particular without the knowledge and consent of surety, it will become
void and the surety will be discharged12. As the issue is in the present case that the instruments of
guarantee remained in the hands of Sudeep and bank while Shaleen returned to Ohio
immediately after signing the contract.

The principle of law on the discharge of sureties is that the surety, cannot be held bound to some
thing for which he has not contracted. If the original parties have expressly agreed to vary the
terms of the original contract no further question arises. The original contract nas gone, and
unless the surety has assented to the new terms« there is nothing to which he can be bound, for
the final obligation of the principal debtor will be something different from the obligation which
the surety guaranteed.

9
Muthiah Mudaliar v. Samasundaram Mudaliar, 1974 TLNJ 282(Mad).
10
D.K. Mohammad Ehiya v.R.M.P.V. Valliappa Chettiar, A.I.R. 1936 Mad 576.
11
Indan Bank v. S. Krishnaswamy, A.I.R. 1990 Mad 115.
12
Davidson v. Cooper, (1844) 13M and W.343.
2. THAT SURETY IS DISCHARGED FROM HIS LIABILITIES TO PAY AND THE
BANK MUST PROCEED AGAINST THE SECURITIES OF THE PRINCIPLE
DEBTOR-

A surety is discharged by an arrangement or by a contract between a creditor and a principal


debtor whereby the principal debtor is released. Release of the principal debtor also operates as a
release of the surety13. It has been already noted that the liability of the surety is co-extensive
with that of the principal debtor. Therefore, if by any contract between the creditor and the
principal debtor the principal debtor is released, or by any act or omission of the creditor, the
principal debtor is discharged, the surety will also be discharged from his liability accordingly.14

As established in 1.1 that surety is discharged from the liability if their variance in the terms of
the contract i.e, Shaleen signs the contract knowing that he has to become surety for the amount
50 crores. But afterwards bank while processing the loan comes to know about a circular that
NRI’s cannot be surety of principal debtors in India and that to of 50 crores and intead the bank
can sanction loan upto 25 crores to individual debtors, hence, the amount was reduced to 25
crores by Sudeep.

Although the liabilities of the surety is co-extensive with that of the principal debtor.15but it is
one of the provisions of section 133 of the contract act that if the terms of the contract is changed
without the consent of the surety then the surety is discharged from the liabilities.

Also it has been mentioned in 1.1 that the defendant had committed fraud on their part by
varying the terms of the contract without the knowledge of the surety and doing something
without the knowledge of any one party of the contract amounts to fraud.Which is indicator of
the fact that the appellant in the role of surety is discharged from his obligations and liabilities
towards the creditor.

13
Supra note 2.
14
http://shodhganga.inflibnet.ac.in/bitstream/10603/52341/9/09_chapter%205.pdf
15
Supra note 2.
SUMMARY OF ARGUMENTS-

1. THAT THE RESPONDENTS HAVE COMMITTED FRAUD BY VARYING THE


TERMS OF THE CONTRACT OF GUARANTEE WITHOUT THE CONSENT OF THE
APPELLANT

In the instant case the appellant argues that he shared a fiduciary relationship with the respondent
as he was his very close friend and hence he was ready to give surety on his behalf of such a
huge amount of 50 crores. But later on when the terms of the contract were varied and he was not
even without him being informed, he considered this as a fraud on their part as he was also a
party to the contract and needed to be informed of such an important alteration. So the counsel
pleads that such variations in the terms of the contract without informing the appellant is fraud.

2.THAT SURETY IS DISCHARGED FROM HIS LIABILITIES TO PAY AND THE


BANK MUST PROCEED AGAINST THE SECURITIES OF THE PRINCIPLE DEBTOR

As established in 1.1 that surety is discharged from the liability if their variance in the terms of
the contract i.e, Shaleen signs the contract knowing that he has to become surety for the amount
50 crores. But afterwards bank while processing the loan comes to know about a circular that
NRI’s cannot be surety of principal debtors in India and that to of 50 crores and intead the bank
can sanction loan upto 25 crores to individual debtors, hence, the amount was reduced to 25
crores by Sudeep. The defendant had committed fraud on their part by varying the terms of the
contract without the knowledge of the surety and doing something without the knowledge of any
one party of the contract amounts to fraud.Which is indicator of the fact that the appellant in the
role of surety is discharged from his obligations and liabilities towards the creditor.