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Section 138: Release of one co-surety does not discharge others

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Act 1872
Section 137 All 266 Sections of Indian Contract Act Section 139

Legal Commentary & Landmark Judgments: Section 138

Section 138 of the Indian Contract Act, 1872 regulates the legal consequences of a creditor releasing one co-surety, providing that such release does not discharge the remaining co-sureties from their obligations to the creditor, nor does it extinguish the released co-surety's liability to contribute to the remaining co-sureties under Section 146 and 147. This provision insulates the creditor's debt while preserving internal equity among co-guarantors.

  • Non-Discharge of Remaining Co-Sureties: The creditor's unilateral compromise, release, or abandonment of claims against one co-surety does not operate as a release of the other co-sureties; they remain liable for the debt.
  • Preservation of Right of Contribution: The released co-surety is not freed from his statutory obligation of equitable contribution; if the remaining sureties pay the creditor, they can still compel the released surety to contribute his proportionate share.
  • Distinction from Release of Principal Debtor: Unlike Section 134, where release of the principal debtor completely discharges all sureties, release of one co-surety leaves the underlying debt and the liability of other co-sureties intact.
Key Landmark Precedents:
  • Sri Chand v. Jagdish Pershad Kishan Chand (1966) 3 SCR 451: The Supreme Court analyzed joint suretyship and abatement, observing that under Section 138, release of one co-surety does not discharge others, though in joint and non-severable decrees procedural abatement may impact execution.
  • State of M.P. v. Kaluram AIR 1967 SC 1105: The Supreme Court noted that while release of a co-surety does not discharge others under Section 138, the creditor cannot by his active conduct impair the securities or rights of contribution available to the co-sureties.
Courtroom Practice & Strategic Litigation Guidance:

In one-time settlement (OTS) negotiations involving multiple guarantors, advise the bank to draft the release of an individual promoter-guarantor with explicit reservation of rights against the remaining co-guarantors under Section 138. If representing a co-surety left holding the liability, file a recovery suit against the released co-surety for equitable contribution under Section 146.

Section 137 All 266 Sections of Indian Contract Act Section 139