Surety’s liability : where liability of principal debtor is extinguished, the surety’s liability gets automatically terminated – contract act s. 128

In the instant case, the suit against the principal debtor
was dismissed for default and decision became final. Therefore, under law, there
was no liability surviving against debtor for realisation of amount due to the
creditor.

The Andhra Pradesh High Court held that once the liability of
principal debtor was extinguished, the sureties’ liability gets automatically
terminated. Therefore, without making the principal debtor liable for payment of
amount to the creditor, the sureties cannot be made liable for recovery of the
amount.

A surety is a person who comes forward to pay the amount in
the event of the borrower failing to pay the amount, unless it is held by a
competent Court through a decree that he is not liable to pay the amount due to
the creditor and when he denies the liability, it becomes difficult for the
creditor to realise the amount. In the event of a decree in favour of the
creditor against the principal borrower, the wings of the decree can also be
extended against the sureties as their liability is co-extensive with the
principal debtor. Once there is a decree, the creditor is at liberty to proceed
either against the principal borrower or sureties, provided that the remedy of
the surety is available for recovery of the amount against the principal debtor
after payment of the amount to the creditor.