The Supreme Court appeal arose from a complaint brought in the trial court by
one Thomco's Bank in Trivandrum against the appellant N.S. Anirudhan and one V.
Sankaran. V. Sankaran was sued for a promissory note he signed in favour of the
Bank on February 24, 1947, and the present appellant was sued for a letter of
assurance he signed on May 24, 1947. The appellant had agreed to reimburse the
Bank the sum due on the overdraft account created in Sankaran, up to a maximum
of Rs. 20,000/-, which was also the maximum amount for which the overdraft had
been arranged, by signing this letter of guarantee. Two adjustments were made to
the letter of guarantee filed to the court, both in terms of figures and the
written words specifying the amount of guarantee.
Petitioner: M. S. Anirudhan v/s. Respondent: The Thomco's Bank Ltd.
Citation: 1963 Air 746 - Bench: A.K. Sarkar, J.L. Kapur And M. Hidayatullah, Jj.
- Date Of Judgment: 14/02/1962
The number '5' in the guarantee amount of Rs. 25000/- appears to have been
changed to '0,' resulting in a payment of Rs. 20000/-. Also, the word 'five'
appeared to have been scratched out in the phrase 'Rupees Twenty-Five Thousand,'
resulting in the sum being 'Rupees Twenty Thousand' in words.
The appellant Anirudhan claimed in the trial court that he had provided a
guarantee of just Rs. 5000/-, which was changed to Rs. 20000/- without his
consent by the major debtor Sankaran.
However, the Trial Court rejected Anirudhan's set of facts about the change in
the letter of guarantee and the case he built out of them. The suit against the
appellant was rejected because the original amount of guarantee was Rs. 25000/-
and was changed to Rs. 20000/- without the approval of the surety, and also
because no objection regarding the material character of the alteration was
There was no prior oral contract between the surety and the Bank, according to
an appeal before the Kerala High Court. The bank claimed that after agreeing to
offer a loan of Rs. 20000/-, Sankaran presented the letter of guarantee and
requested a second loan of Rs. 5000/-, which the bank declined. Sankaran then
took back the letter of guarantee and returned it after making the
Anirudhan did not agree to these revisions, but the Bank preserved the letter
and sued Anirudhan over it. The Bank's appeal was granted, and Anirudhan was
ordered to pay the sum of the guarantee stated in the letter. Against this
decision of the High Court, Anirudhan appealed in the Supreme Court.
Whether document i.e., contract of guarantee is void due to alteration made and
does it discharge the surety of his liability?
The law involved in this case is Section 133 of Indian Contract Act,1872. The
section states that, Any variance, made without the surety's consent, in the
terms of the contract between the principal debtor and the creditor, discharges
the surety as to transactions subsequent to the variance. i.e , Discharge of
surety by variance in terms of contract.
The Kerala High Court based its decision on Section.87 of the Negotiable
Instruments Act, 1881, which states: Effect of material alteration. � Any major
alteration of a negotiable instrument renders it voids as against anyone who is
a party to the instrument at the time of the alteration and does not consent to
it, unless it was made to carry out the original parties' shared intention;
alteration by endorsee. And any such change, if made by an endorsee, releases
his endorser from all duty in relation to the consideration. This section is
subject to the provisions of sections 20, 49, 86, and 125.
An alteration made in a deed, after its execution, in some particular which is
not material does not in any way affect the validity of the deed; It appears
that an alteration is not material which carries out the intention of the
parties already apparent on the face of the deed.
The Supreme court of India also took into account the Halsbury's laws of
England, 3rd Edn., Vol. 8. para 301, p.176 which states that:
An unauthorised material alteration avoids a contract, so that if a promisee
materially alters a written contract without the consent of the promisor,
whether by adding anything to it or striking out any part of it or otherwise,
the contract is avoided as against the person who was otherwise liable under it.
It may also be held as law that if the contract is in the custody of the
promisee or his agent, even if the amendment is done by a stranger without the
promisee's knowledge, the other party is dismissed. The promisor is not released
if the contract is amended by a stranger while the contract is not in the hands
of the promisee.
In this instance, M. Hidayatullah and J.L. Kapur JJ held that the change in the
letter of guarantee was not material or substantial, and therefore the surety's
responsibilities under the letter were not discharged. However, A.K. Sarkar J
dissented, holding that the change amounted to the surety being released from
his responsibilities. Thus, the court held that the change had not released the
appellant from his obligations as a surety, and that he was still liable to the
Bank for Rs. 20000/-.
Kapur J reasoned that, since the surety is not discharged from his obligations
he entrusts the letter of guarantee to the principal debtor by himself and the
principal debtor makes any alteration in such a letter, such a condition
squarely applies to this case. In this case, Anirudhan, the appellant, gave his
letter of guarantee to the major debtor Sankaran, who then made the
aforementioned change. In such a circumstance, according to Kapur J, the major
debtor serves as the surety's agent, and the surety is not discharged.
The change in the letter of guarantee, according to Sarkar J., was not made to
carry out the parties' desire. He concluded that. the change was made without
the appellant's permission and thus without his consent. The surety was not
bound by such a change. In addition, he decided that if the change is ignored,
no contract exists and the surety cannot be sued on it. Also, if the change was
made without his knowledge, the amended document did not create the contract for
which the surety was being sued because he never agreed to it. As a result, the
surety was released from the contract's obligations to the Bank.
The change made to the letter of guarantee, according to Hidyatullah J., was
insignificant and insignificant. He held that if an investigation reveals that
the change was insignificant or for the benefit of the surety, the surety would
not be released and will remain liable. He also provided the logic of agency as
stated by Kapur. He also evaluated the change that would have occurred if the
law had not been changed, because the maximum amount that could be lent was only
According to common law, any variation made in the contract of guarantee without
the approval of the surety will result in the surety's discharge. The premise of
law governing surety discharge is that, like any other contracting party, the
surety cannot be held liable for what he has not agreed to. The Supreme Court is
now hearing the case. The trial court initially determined that the sum
guaranteed in the letter had been changed without the appellant's agreement from
Rs. 25,000 to Rs. 20,000.
The claim against the appellant had to be dismissed because it was not disputed
that the alteration was important, and a decree was issued in that regard,
presumably because the alteration had avoided the instrument. The respondent
Bank then filed an appeal with the Kerala High Court. The High Court concurred
with the trial court that the letter of assurance originally stated Rs. 25,000
and was later changed to Rs. 20,000 without the appellant's agreement. It went
on to say that the change was most likely made by the main debtor, Mr. Sankaran.
It was held, however, that the appellant had written Rs. 25,000/- in the letter
instead of Rs. 20,000/- by mistake, and that the change was made to carry out
the common intention of Mr.Sankaran, the appellant, and the Bank that the
appellant would give the Bank a letter of guarantee in exchange for the
overdraft accommodation of Rs. 20,000/- allowed to Mr.Sankaran. The High Court
ruled against the applicant based on the concept set forth in Section 87 of the
Negotiable Instruments Act of 1881.
The majority of the bench concluded that. the letter constituted an enforceable
contract since it was backed up by consideration that had already flowed from
the Bank, notably the advance to Mr. Sankaran prior to the letter's date and the
commitment to make additional advances. According to Explanation 2 of S.25 of
the Indian Contract Act, 1872, inadequacy of consideration does not prevent a
contract from being formed, and so the Bank's promise to advance up to Rs.
20,000/- could support the appellant's offer to guarantee up to Rs. 25,000/-.
However, it is not the Bank's case that such a guarantee contract existed. It
said that the guarantee contract was for Rs. 20,000/-.
Such a change was not harmful to the surety because the lower value was already
contained in the initial amount of guarantee, i.e., if the amount had been Rs.
25000/-, the appellant would have had to cover the amount of Rs. 20000/- while
paying off the debt of Rs. 25000/-. As a result, a reduction in an amount
already agreed to be paid does not require explicit approval, and such consent
might be assumed. As a result, Sankaran's change to the letter of guarantee
cannot be considered substantial.
As a result, the argument that the change was insignificant and had no effect on
the instrument in the eyes of the appellant is irrelevant in this case.
Anirudhan's letter to the Bank was based on a consideration that had already
been transferred to Sankaran and that Anirudhan intended to guarantee. Even if
the updated offer was viewed as Anirudhan's offer to the Bank, the Bank accepted
it, and Sankaran must be deemed to have had the right to cut the amount, but not
to increase it.
The document was tampered with while in the custody of the individual who
brought it to the Bank on both occasions as Anirudhan's representative. Because
the Bank believed Sankaran had the authority, Anirudhan must be regarded to have
held forth Sankaran as his agent for this reason, which generates an estoppel
against him. The offer remains an offer of Anirudhan to the Bank in its altered
form, and the Bank's acceptance changed it into a contract of guarantee
supported by the prior consideration on which Anirudhan's offer was originally
In the judgement of the minority, J.L. Kapur had an opinion that the
modification to Rs. 20,000/- and any change in figure was considered a material
alteration resulting in the avoidance of the contract, even if the change was
beneficial to him, the obliger. Insofar as it is material, the non-accepting
obliger - in this case, the appellant - cannot be held liable on the obligation
in the altered form because he never made or consented to such an obligation,
and he cannot be held liable on the obligation in the original form because the
obligation was never as it was.
If a guarantor entrusts a letter of guarantee to the principal borrower and the
principal borrower makes an alteration without the appellant's consent, the
guarantor is liable because the letter of guarantee remains with the principal
debtor, in this case defendant No. 1, due to the guarantor's act, and what the
principal debtor did will prevent the guarantor from pleading wavier. The
appellant agreed to stand surety for Shankaran, the principal debtor, on an
overdraft granted by the respondent Bank.
The Bank wanted a guarantee in the form that was given to Shankaran, the major
debtor. Shankaran had it filled for Rs. 25,0 by the appellant.The Bank refused
to accept the guarantee up to that amount and demanded that the value be
rectified, i.e. by adding Rs. 20,000/-.
The document was then returned to the major debtor, who was said to have altered
it. At that point, the principle debtor was acting for and on behalf of the
appellant because the appellant was standing surety at his request, and the
appellant turned over the deed of guarantee to the principal debtor for delivery
to the respondent bank.
In these circumstances, the doctrine of contract avoidance by material amendment
is inapplicable since the document was revised by the major debtor, who was
acting as the guarantor's agent at the time.
The appeal is dismissed in accordance with the majority's opinion. As a last
point, it is important to highlight that this decision established the law for
interpreting the principle of surety discharge by variation in the terms of the
guarantee contract. Despite the criticism, the interpretation of the rule of
surety discharge set forth in this judgement is still a good legislation. This
ruling is unassailable because it sets a precedent.
In reality, this ruling established an Indian authority on the fact that any
changes to the terms of the guarantee that are not material or beneficial to the
surety are not considered to relieve the surety of his contractual
- Avatar Singh, Contract And Specific Relief (EBC, 2017) , 12th edn
- Ms Anirudhan Vs. The Thomco's Bank Ltd. Available at: https://indiankanoon.org/doc/375395/
- Contract of guarantee available at: https://www.legalserviceindia.com/legal/article-5657-contract-of-guarantee.html
- Judgement of Ms anirudhan vs the thomcos bank available at: