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Section 142: Guarantee obtained by misrepresentation, invalid

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 141 All 266 Sections of Indian Contract Act Section 143

Legal Commentary & Landmark Judgments: Section 142

Section 142 of the Indian Contract Act, 1872 vitiates and invalidates any contract of guarantee obtained by means of a misrepresentation made by the creditor, or made with the creditor's knowledge and assent, concerning a material part of the transaction. This provision enforces absolute commercial integrity upon lenders, penalizing false statements that induce a surety to assume financial liability.

  • Material Misrepresentation: The misrepresentation must relate to a material fact affecting the transaction, the financial condition of the borrower, the existence of underlying securities, or the terms of the credit facility.
  • Direct or Imputed Creditor Responsibility: The misrepresentation must either be made directly by the creditor (or its officers/agents) or made by the debtor/third party with the creditor's knowledge and assent.
  • Total Invalidation of Guarantee: Once statutory misrepresentation is established, the guarantee is rendered void ab initio; the creditor cannot enforce any part of the liability against the surety.
Key Landmark Precedents:
  • National Provincial Bank of England v. Glanusk [1913] 3 KB 335: Celebrated English authority defining the threshold of disclosure and misrepresentation in guarantee transactions, holding that while a creditor is not bound to disclose everything, any positive statement that misleads the surety regarding the nature of the transaction invalidates the guarantee.
  • Balkrishna v. Bank of Bengal (1891) ILR 15 Bom 585: The Bombay High Court held that where a bank induces a surety to sign a guarantee by misrepresenting that previous defaults have been settled or that other securities are held in reserve, the guarantee is wholly invalid under Section 142.
Courtroom Practice & Strategic Litigation Guidance:

In challenging a personal guarantee executed by a director or family guarantor, review all representations made in sanction letters, sanction terms, and facility agreements. If the bank falsely represented that co-guarantors or primary corporate collaterals were already in place, plead Section 142 to have the guarantee declared null and void.

Section 141 All 266 Sections of Indian Contract Act Section 143