“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 \u201cthe Contract Act\u201d), 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.<\/p>\n
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.)<\/p>\n
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.)<\/p>\n
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.”<\/p><\/blockquote>\n
The Apex Court in Vinayak Purshottam Dube (Deceased) through LRs v. Jayashree Padamkar Bhat and Others, 2024 INSC 159<\/strong> 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.<\/p>\nThe Madras High Court in State Bank of India & Anr. v. Jayanthi & Ors. (2011 AIR 179 Madras)<\/strong> held that the guarantor\u2019s 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:<\/p>\n“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.”<\/p><\/blockquote>\n
It is also important to refer to Section 131 of the Indian Contract Act, 1872<\/strong>, 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:<\/p>\n131. Revocation of continuing guarantee by surety’s death.\u2014<\/em>
\n“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.”<\/p><\/blockquote>\nThus, 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.<\/p>\n
For example, suppose a father guaranteed a loan and passed away. His estate includes \u20b920 lakhs in assets but the quantum of loan defaulted is \u20b930 lakhs. In this case, the creditor can claim only up to \u20b920 lakhs from the estate and cannot touch the personal assets of the legal heirs beyond what they have inherited.<\/p>\n
<\/span>Key Legal Principles<\/span><\/h3>\n\n- Liability is not personal, but limited to the inherited estate.<\/li>\n
- If no property is inherited, no liability arises.<\/li>\n
- A legal heir becomes personally liable only if he gives a fresh guarantee.<\/li>\n<\/ul>\n
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:<\/p>\n
\n- Liability of Legal Heirs is Limited to the Inherited Estate<\/strong>
\nLegal 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\u2014not from the heirs\u2019 personal assets.<\/li>\n- No Personal Prosecution of Legal Heirs<\/strong>
\nLegal heirs cannot be personally prosecuted for the debt; they can be included as parties only as representatives of the estate of the deceased.<\/li>\n- Exception: Continuing Guarantees with Express Provision<\/strong>
\nIf 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.<\/li>\n<\/ol>\n<\/span>Conclusion<\/span><\/h2>\nThe 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.<\/p>\n
Written By:<\/strong> Inder Chand Jain
\nPh no:<\/strong> 8279945021
\nEmail:<\/strong> inderjain2007@rediffmail.com<\/p>\n","protected":false},"excerpt":{"rendered":"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<\/p>\n","protected":false},"author":73,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"two_page_speed":[],"_jetpack_memberships_contains_paid_content":false,"_joinchat":[],"footnotes":""},"categories":[19,93],"tags":[24],"class_list":{"0":"post-7095","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-civil-law","7":"category-property-laws","8":"tag-just-in"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/7095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/users\/73"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/comments?post=7095"}],"version-history":[{"count":0,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/7095\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/media?parent=7095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/categories?post=7095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/tags?post=7095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}