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Report No. 13

108. Section 141.-

This section limits the surety's right to the securities held by the creditor at the date of his becoming surety. According to the current English law "a surety has on payment and not before, a right to the benefit of all the securities, whether known to him or not at the time when he became surety, which the creditor has received from the principal-debtor, before, contemporaneously with, or after, the creation of the suretyship, and whether or not they existed at the time when the guarantee was given.1"

1. Halsbury Laws of England, 2nd Edn., Vol. 16, pp. 92, 93.

We think that the law upon this point should be brought in line with the English law.

109. The section does not lay down at what point of time the surety is entitled to have the creditor's securities made over to him wholly or in part, whether at the time when the debt of the creditor is paid off or when the surety pays the amount of his guarantee. There is a difference between the Bombay and Madras High Courts on this point. In Goverdhandas v. Bank of Bengal, 15 Bom 48, a surety had guaranteed an aliquotor a defined portion of past debt secured by mortgage. On payment by him of the portion of the debt guaranteed by him, he claimed to be entitled to share in the mortgage in proportion to the amount of the debt which he had guaranteed and paid before the d.

In Parvataneni Bhushayya v. Suryanarayana, AIR 1944 Mad 195. the Madras High Court doubted the correctness of this view. That Court decided that the surety was entitled to a proportionate share in a security held by the creditor at the time the surety discharged his liability even though the creditor was not fully paid. Pollock and Mulla1 opined that the view taken by the Madras High Court is inequitable and that the creditor's right to hold securities until the whole debt has been paid is paramount to any claim of the surety whether based upon section 140 or section 141. We agree with the opinion of the learned Commentators and recommend that it should be made clear that the surety is entitled to have the creditor's securities made over to him only when the creditor is fully paid off.

1. Pollock & Mull; Op. Cit., p. 551.

Indian Contract Act, 1872 Back

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