Case Title and Citation
Bhagyalaxmi Co-operative Bank Ltd. v. Babaldas Amtharam Patel (D) Through LRs & Others, Civil Appeal No. 3200 of 2016, decided by the Supreme Court of India (B.V. Nagarathna and Ujjal Bhuyan, JJ.), February 27, 2026.
Facts in Brief
In 1993, M/s Darshak Trading Company obtained a cash-credit facility of Rs. 4,00,000 from the appellant Bank. Respondents 1 and 2 stood as sureties for this specific amount. The borrower subsequently withdrew sums far exceeding the sanctioned limit, allegedly in connivance with bank officers, and defaulted on repayment. (Para 1)
The Bank sought recovery of Rs. 26,95,196.75 from both the borrower and the sureties. While the Board of Nominees only held the borrower liable, the Gujarat State Co-operative Tribunal later directed the sureties to pay the original Rs. 4,00,000. However, the High Court of Gujarat set this aside, ruling that the sureties were entirely discharged under Section 139 of the Contract Act due to the unauthorized variance. (Paras 1.2 to 1.3)
Issues for Determination
Whether the respondents are entitled to a total discharge of liability under Section 139 of the Indian Contract Act, or if they remain liable for the original sanctioned amount as sureties under Section 133 of the Act. (Para 3)
Submissions of the Petitioner
The appellant argued that under Section 133 of the Act, a variance made without the surety’s consent only discharges the surety regarding transactions subsequent to that variance. They contended the Bank is entitled to recover the original dues from the sureties up until the point the contract was varied. (Para 2)
Submissions of the Respondent
The respondents relied on Section 139 of the Act, arguing that the Bank performed acts inconsistent with the rights of the sureties by allowing overdraws without their knowledge. They claimed this impaired their eventual remedy against the principal debtor, thereby discharging them from all liability under the contract. (Paras 2.2)
Findings of the Court
The Court held that Section 133 is the applicable provision. It clarified that discharge of a surety is not absolute; a surety is only discharged regarding transactions occurring after the variance. The High Court erred in holding that liability cannot be bifurcated between the original sanctioned loan and the overdrawn amounts. (Paras 7)
Regarding Section 139, the Court found it inapplicable because, while the overdrawing affected the sureties’ rights, it did not impair their eventual remedy against the principal debtor. The statute mandates a bifurcation to determine the extent of liability based on the original consent provided by the sureties. (Para 7.1)
Final Order
The appeal was allowed, and the High Court’s order was set aside. The respondents were held liable to the extent of the original Rs. 4,00,000 with interest. Parties were ordered to bear their own costs. (Paras 7.3 and 7.4)