Last Updated on August 18, 2026 by Satish Mishra
Guarantor Liability Is Immediate: Creditor Need Not First Exhaust Remedies Against the Borrower
A recent judgment of the Allahabad High Court, Lucknow Bench, has reaffirmed an important principle concerning the liability of a guarantor for repayment of a borrower’s loan.
The Court held that, unless the contract of guarantee provides otherwise, the liability of the guarantor is co-extensive with that of the principal borrower. A creditor is therefore entitled to proceed against the guarantor without first exhausting its remedies against the principal borrower.
Guarantor liability before Borrower -Background
The case concerned two employees who had stood as guarantors for loans taken by a fellow employee from a cooperative bank.
The principal borrower had availed three loans during 2022–23, including a festival loan, a short-term loan and a personal loan. After the borrower defaulted, the bank initiated recovery proceedings against the borrower and simultaneously sought recovery from the guarantors.
The bank also requested deduction of ₹10,000 per month from the salary of each guarantor towards the outstanding loan liability. The guarantors challenged the proposed recovery before the High Court.
Guarantors’ Argument
The guarantors argued that the bank should first exhaust all available remedies against the principal borrower.
According to their contention, recovery from the guarantors should arise only after the bank had recovered whatever was possible from the borrower and only the residual amount remained unpaid.
They relied upon the Supreme Court’s decision in Ram Kishun v. State of U.P. in support of their argument.
What Does Section 128 of the Contract Act Say?
The High Court examined Section 128 of the Indian Contract Act, 1872, which provides that the liability of a surety is co-extensive with that of the principal debtor, unless the contract provides otherwise.
The Court explained that “co-extensive” means that the guarantor’s obligation is ordinarily for the same amount for which the principal borrower is liable.
Thus, unless the guarantee agreement contains a specific restriction, the guarantor can be made liable for the entire outstanding liability of the principal borrower.
Can the Bank Proceed Against Both Borrower and Guarantor?
Yes.
The High Court categorically held that the liability of the principal borrower and guarantor is joint and several.
Consequently, the creditor is legally entitled to proceed against:
- The principal borrower;
- The guarantor; or
- Both simultaneously.
There is no general rule requiring the creditor to first exhaust its remedies against the principal borrower.
Supreme Court Precedents
The High Court relied upon a consistent line of Supreme Court decisions, including:
- Bank of Bihar Ltd. v. Dr. Damodar Prasad;
- State Bank of India v. Indexport Registered;
- Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala; and
- SBI v. Saksaria Sugar Mills Ltd.
These decisions establish that the creditor is not required to postpone recovery against the surety until proceedings against the principal borrower have been exhausted.
The Court particularly emphasised that the liability of a surety is immediate and is not deferred until the creditor exhausts its remedies against the principal borrower.
What About the Guarantor’s Salary?
In the case before the High Court, the bank had sought monthly deductions from the guarantors’ salaries.
The Court found that the guarantee agreements did not contain any provision postponing the guarantors’ liability or requiring the bank to proceed against the principal borrower first.
Therefore, the Court held that the bank was entitled to seek recovery from the guarantors’ salaries through monthly deductions.
Important Point: The Guarantee Agreement Still Matters
The judgment does not mean that every guarantor is automatically liable in every situation without reference to the terms of the guarantee.
Section 128 itself recognises that the guarantor’s liability is co-extensive unless the contract of guarantee provides otherwise.
Therefore, while examining a guarantor’s liability, the actual terms and conditions of the guarantee agreement remain important.
Key Takeaways
- A guarantor’s liability is ordinarily co-extensive with that of the principal borrower.
- The creditor is generally not required to first exhaust remedies against the borrower.
- Recovery can ordinarily be pursued against the borrower and guarantor simultaneously.
- A guarantor cannot ordinarily dictate the sequence in which the creditor must recover its dues.
- The liability of a surety is generally immediate, subject to the terms of the guarantee contract.
- A contractual clause postponing or limiting the guarantor’s liability may alter the position.
- In the present case, the Court upheld recovery from the guarantors’ salaries because no contractual restriction postponing their liability was shown.
Conclusion
The Allahabad High Court’s judgment is an important reminder that standing as a guarantor is not merely a formal obligation. Under Section 128 of the Indian Contract Act, a guarantor can become directly liable for the borrower’s outstanding debt.
The creditor is ordinarily free to proceed against the guarantor without waiting for the principal borrower to exhaust his or her assets or resources.
For prospective guarantors, the practical lesson is equally important: before signing a guarantee, carefully examine the scope, extent and conditions of the guarantee agreement, because the consequences of default by the principal borrower can directly affect the guarantor.
Source: Allahabad High Court, Lucknow Bench, common judgment in Writ-C Nos. 6410 of 2026 and 6423 of 2026 concerning recovery from guarantors of a defaulting borrower.
By Satish Mishra, Advocate
