Synopsis

This Supreme Court judgment resolves a dispute concerning the liability of sureties (guarantors) when the principal debtor, without the sureties' knowledge, overdraws amounts far in excess of the originally sanctioned loan limit. The key legal question was whether the sureties were completely discharged from liability under Section 139 of the Indian Contract Act, 1872, or whether they were only partially discharged under Section 133, remaining liable for the original sanctioned amount. The Court held that Section 133 was the applicable provision. It ruled that sureties are liable for the original amount for which they stood guarantee (₹4 lakhs) but are discharged from liability for the excess amounts withdrawn subsequent to the variance of the contract without their consent. The High Court's "all or nothing" approach was reversed.

1. Basic Information of the Judgment

Case Title: Civil Appeal No. 3200 of 2016 – Bhagyalaxmi Co-Operative Bank Ltd. vs. Babaldas Amtharam Patel (D) Through Legal Representatives & Ors.

Citation: 2026 INSC 205

Court: Supreme Court of India

Jurisdiction: Civil Appellate Jurisdiction (Article 136)

Coram: Justice B.V. Nagarathna & Justice Ujjal Bhuyan

Nature of Bench: Division Bench

Date of Judgment: February 27, 2026

2. Legal Framework & Key Precedents

The judgment is a classic exposition of the law of guarantee under the Indian Contract Act, 1872.

• Primary Legislation:
  Indian Contract Act, 1872 (the Act):
  Section 126: Defines a contract of guarantee, surety, principal debtor, and creditor.
  Section 128: States that the liability of the surety is co-extensive with that of the principal debtor, unless the contract provides otherwise.
  Section 133: Discharge of surety by variance in terms of contract. It states that any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the credito

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