It is very common that a friend or relative of a person who takes a loan from a bank/financial institution/NBFC becomes a guarantor to the loan. Sometimes, the loanee/principal borrower defaults in payment of the loan. Meanwhile, if the guarantor dies, a question arises whether the legal heirs of the guarantor are liable to repay the loan guaranteed by the deceased.
In such cases, the legal heirs of the deceased guarantor often deny their liability to repay the loan, arguing that they are personally neither borrowers nor guarantors of the defaulted loan. However, the Courts in India have unanimously and consistently held that the legal heirs are liable to repay the debt guaranteed by their parents, but their liability is limited to the extent of the estate inherited from the deceased.
It is no longer Res Integra that a personal guarantee is not heritable and therefore not enforceable against heirs personally. Legal heirs are not personally liable to repay a debt guaranteed by the deceased parent. Their liability is limited to the value of the estate inherited, and they cannot be sued for amounts beyond that.
The liability of the legal heirs to repay a debt guaranteed by their deceased parent depends on several legal principles under Indian law. The position under our law and the legal analysis in this regard is as follows:
Leading Case Laws and Statutory Provisions
- Heirs are not personally liable
Heirs do not inherit personal liability for the debts or guarantees of a deceased parent. However, they may be liable to the extent of the estate inherited from the deceased. - Section 50 of the Code of Civil Procedure, 1908
If a judgment-debtor dies before the decree is fully satisfied, the decree may be executed against the legal representative, but only to the extent of the property of the deceased in their possession. Thus, the liability of legal heirs is limited to the value of the estate/assets inherited from the deceased guarantor — not beyond that.
Supreme Court and High Courts have consistently upheld the limited liability of legal heirs in respect of debts, including those arising from guarantees given by deceased persons.
In The Andhra Bank Ltd vs R. Srinivasan And Others AIR 1962 SUPREME COURT 232, the Apex Court categorically held that legal representatives are liable only to the extent of the estate inherited from the deceased and not personally. It can be safely inferred that guarantees do not survive against heirs personally unless fresh consideration is given.
In the case of Ram Kishun v. State of U.P. (2012) 11 SCC 511, the Apex Court considered all facets of the rights and liabilities of guarantors. The Court held:
“10. There can be no dispute to the settled legal proposition of law that in view of the provisions of Section 128 of the Contract Act, 1872 (hereinafter called “the Contract Act”), the liability of the guarantor/surety is coextensive with that of the debtor. Therefore, the creditor has a right to obtain a decree against the surety and the principal debtor. The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not.
The surety does not have a right to dictate terms to the creditor as to how he should make the recovery and pursue his remedies against the principal debtor at his instance. (Vide Bank of Bihar Ltd. v. Damodar Prasad AIR 1969 SC 297, Maharashtra SEB v. Official Liquidator (1982) 3 SCC 358, AIR 1982 SC 1497, Union Bank Of India v. Manku Narayana (1987) 2 SCC 335, AIR 1987 SC 1078 and SBI v. Indexport Registered (1992) 3 SCC 159, AIR 1992 SC 1740.)
11. In SBI v. Saksaria Sugar Mills Ltd. (1986) 2 SCC 145 this Court while considering the provisions of Section 128 of the Contract Act held that liability of a surety is immediate and is not deferred until the creditor exhausts his remedies against the principal debtor. (See also Industrial Investment Bank Of India Limited v. Biswanath Jhunjhunwala (2009) 9 SCC 478 and United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, AIR 2010 SC 3413.)
12. Section 146 of the Contract Act provides that co-sureties are liable to contribute equally. Thus, in case there are more than one surety/guarantor, they have to share the liability equally unless the agreement of contract provides otherwise.”
The Apex Court in Vinayak Purshottam Dube (Deceased) through LRs v. Jayashree Padamkar Bhat and Others, 2024 INSC 159 decided on 1 March 2024 held that liability is confined to the estate inherited by legal heirs and does not extend to their personal assets.
The Madras High Court in State Bank of India & Anr. v. Jayanthi & Ors. (2011 AIR 179 Madras) held that the guarantor’s liability remains and can be enforced against the estate inherited by his legal heirs, but not otherwise. This liability does not extinguish on death, except for future transactions post death. The Court observed:
“Hence, we have no hesitation in holding that the liability of the guarantor cannot be extinguished on his death so far the liability which existed on the date of the death of the Alla. It is well settled that on the death of the Guarantor, the liability exists and such liability can be fastened on the estate of the deceased, being inherited by his legal heirs, and the creditor can recover the dues out of the estate of the deceased.”
It is also important to refer to Section 131 of the Indian Contract Act, 1872, which states that a guarantee is revoked for future transactions on the death of a guarantor but remains in force for liabilities that existed before death. The section reads:
131. Revocation of continuing guarantee by surety’s death.—
“The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.”
Thus, if a personal guarantee given by a parent is invoked after their death, the lender can at best claim against the estate of the deceased, but cannot proceed against the heirs personally.
For example, suppose a father guaranteed a loan and passed away. His estate includes ₹20 lakhs in assets but the quantum of loan defaulted is ₹30 lakhs. In this case, the creditor can claim only up to ₹20 lakhs from the estate and cannot touch the personal assets of the legal heirs beyond what they have inherited.
Key Legal Principles
- Liability is not personal, but limited to the inherited estate.
- If no property is inherited, no liability arises.
- A legal heir becomes personally liable only if he gives a fresh guarantee.
When a person stands as a guarantor for a loan and the principal borrower defaults, if the guarantor subsequently dies, the liability does not automatically lapse. The key legal principles and case law addressing the liability of legal heirs of a deceased guarantor in India are:
- Liability of Legal Heirs is Limited to the Inherited Estate
Legal heirs of a deceased guarantor are not personally liable for the guarantee. They are liable only to the extent of the estate inherited from the deceased guarantor. Creditors can recover dues only out of the assets inherited—not from the heirs’ personal assets. - No Personal Prosecution of Legal Heirs
Legal heirs cannot be personally prosecuted for the debt; they can be included as parties only as representatives of the estate of the deceased. - Exception: Continuing Guarantees with Express Provision
If a guarantee expressly binds legal heirs by contract, creditors may attempt to proceed against them, but generally, courts uphold that liability cannot extend beyond the inherited estate. The Insolvency and Bankruptcy Code does not define legal heirs as personal guarantors and generally cannot proceed against them directly.
Conclusion
The legal heirs of a deceased guarantor cannot be personally prosecuted for the debt. Their responsibility is restricted to the estate/property inherited from the guarantor. They may be impleaded in legal proceedings, but only as representatives of the estate. There is no absolute personal liability or criminal prosecution for them in such cases.
Written By: Inder Chand Jain
Ph no: 8279945021
Email: [email protected]
