According to the Indian Contract Act of 1872, a surety’s rights are as follows:

Rights Against the Principal Debtor

(i) Right of Subrogation (Section 140)

When a surety pays a debt on behalf of the principal debtor, they obtain all of the creditor’s rights against the debtor.
The surety may claim any security held and request full refund.

Example: If rupees 50,000 is paid, the surety may reclaim the entire amount from the debtor.

(ii) Right to Indemnity (Section 145)

The surety has the legal right to receive compensation from the principal debtor for any amount paid.

Example: If the surety repays a loan, they can reclaim the amount from the debtor.

Rights Against the Creditor

(i) Right to Securities (Section 141)

Following the repayment of the obligation, the surety is entitled to any security held by the creditor from the principal debtor.

If the creditor loses or releases the security without the surety’s approval, the surety’s responsibility is lowered proportionally.

Example: For a rupees 1 lakh security, the surety obtains rights upon repayment.

Rights Against Co-Sureties

(i) Right to Contribution from Co-Sureties (Section 146)

When numerous sureties bear equal obligation, each has the right to collect an equal part from the others.

Example: If one of the three sureties guarantees rupees 60,000 and pays the entire amount, they can reclaim rupees 20,000 from the other two.

(ii) Right of Contribution when Liability is Different (Section 147)

If sureties have differing liability limits, they each contribute according to their share.

Example: To repay rupees 75,000, if one surety is responsible for rupees 50,000 and another for rupees 1,00,000, they contribute rupees 25,000 and rupees 50,000, respectively.

Responsibilities of Surety

Section 128, of the Indian Contract Act of 1872, states that the surety’s liability is equal to that of the principal debtor. If the borrower defaults, the surety is legally required to return the entire amount, including interest and charges. 

Section 126 states that the surety willingly agrees to the guarantee, which can be restricted or infinite. If no limit is established (Sections 129 and 130), the surety is responsible for the whole debt.

The creditor may pursue direct legal action against the surety, and the surety may not require that recovery be sought first from the principal debtor. Courts have taken a tough approach, stating that once a guarantee is provided, the surety cannot avoid culpability, even if the creditor pursues directly against them.

As a result, it is critical for the surety to fully comprehend the conditions before engaging into a guarantee, as their responsibilities become legally binding immediately.

Reasons for the Discharge of a Surety’s Liability

Under the Indian Contract Act, 1872, a surety’s liability can be released under the following conditions:

1. Without Surety’s Consent (Section 133): If the loan terms are changed without the surety’s permission, their liability terminates.
2. Legal Release of Principal Debtor (Section 134): If the major debtor is lawfully dismissed (for example, through bankruptcy), the surety is likewise released.
3. Creditor’s Negligence (Section 139): If the creditor mishandles securities or is negligent, the surety’s liability may cease.
4. Fraudulent Consent (Section 142): If the surety was duped into granting consent, the guarantee is void.
5. Non-Disclosure (Section 143): Hiding important information from the surety can render the contract void.

These provisions protect the surety against unfair or changed responsibilities.