Surety cannot be discharged unilaterally: HC | Bengaluru News

Bengaluru: The high court has ruled that a surety or guarantor cannot unilaterally discharge themselves from liability at their own request. Dismissing a petition filed by a person–Muni Reddy, who had challenged his disqualification as a director of Mahayogi Vemana Cooperative Society at Yelahanka in Bengaluru, Justice Suraj Govindaraj said: “The discharge can only occur upon repayment of the loan or substitution of the surety or guarantor to the satisfaction of the lender.“Reddy, who also served as the society’s president, was disqualified from directorship with effect from Dec 30, 2023, following a complaint that he had stood as surety for a mortgage loan taken by one of the members of the bank — Ravishankar Reddy, who later defaulted on repayment. His appeal before the registrar of cooperative societies was rejected on May 6, 2025, prompting him to knock on the doors of the high court. In his petition, Reddy argued that he had agreed to act as a stop-gap surety for Ravishankar Reddy and had subsequently informed the cooperative society of his intention to retire from the suretyship after the borrower began defaulting on payments. He claimed that the society’s board, during one of its meetings, had instructed the borrower to find a substitute guarantor.However, the complainants contended that the borrower had taken Rs 45 lakh long-term loan and still owed 111 EMIs. They argued that Muni Reddy attempted to withdraw from his role as guarantor knowing fully well that the repayment burden would fall upon him. Without any substitution, they maintained, his retirement as surety was impermissible under law. The complainants further alleged that Reddy, being a political figure, had influenced the board to pass a resolution allowing his discharge without following due process. Justice Govindaraj referred to Section 128 of the Indian Contract Act, which states that the liability of a surety is co-extensive with that of the principal borrower. The judge observed that the purpose of a guarantor is to ensure repayment either by the borrower or, in default, by the guarantor. The guarantor, in turn, retains a right of subrogation—the right to recover the amount from the borrower once repayment is made.The court noted that Reddy had issued a unilateral letter seeking release from his role as surety, which was accepted by the board through a resolution passed with the support of 12 directors. Justice Govindaraj held that such a resolution, passed in favour of the society’s president himself, was contrary to law.