1. The General Rule under Indian Law

A. Contract of Guarantee is independent
Under Section 126, a guarantee is a promise to pay on default of the principal debtor. Under Section 128, the liability of the surety is co-extensive with that of the principal debtor, unless otherwise agreed.

Supreme Court settled position in Bank of Bihar Ltd. v. Damodar Prasad & Anr. (1969) and reaffirmed in State Bank of India v. Makan Pal and Industrial Investment Bank of India v. Biswanath Jhunjhunwala: The creditor can proceed against the guarantor without first proceeding against the borrower, and has no obligation to give prior notice of default.

B. No statutory duty to inform in a simple default
The Contract Act does not impose a positive duty on the creditor to keep informing the guarantor about every EMI bounce, NPA classification, or demand notice. Most modern guarantee deeds specifically include a clause:

"Guarantor will not claim to be discharged to any extent because of the Bank's failure to inform or give notice of default..."

Such clauses have been upheld in Karnataka State Financial Corporation vs N. Narasimahaiah & Ors [2008 AIR 1797, 2008 (5) SCC 176]. The Supreme Court held that such waiver clauses are not void.

2. When Failure to Inform DOES Discharge - Section 139

Section 139 provides the real remedy:

"If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged."

For Section 139 to apply, Supreme Court says two conditions must be satisfied:

1. The creditor either acts against the rights of the surety or fails to perform a duty owed to them, and
2. Such act/omission impairs the surety's eventual remedy against the borrower.

Mere silence is not enough. Impairment must be proved.

Classic illustrations where Courts discharged the guarantor:

A. Loss of Security / Failure to keep security alive
Section 141 read with 139: If creditor loses or fails to protect the security that would have been available to the surety on payment.

In State Bank of India v. Premco Saw Mill (1983) - Bank released the hypothecated goods without informing guarantor. Guarantor discharged because his right of subrogation under Section 140 was impaired.

B. Variance in Contract without Consent - Section 133
This is not exactly "failure to inform" but is argued together. If Bank reschedules, enhances limit, gives extra time without guarantor consent, subsequent liability is discharged.

The leading new law: Bhagyalaxmi Co-operative Bank Ltd. v. Babaldas Amtharam Patel (2025) - Supreme Court, Justices B.V. Nagarathna & Ujjal Bhuyan
The Court held that a guarantor cannot be held liable for loan amounts withdrawn beyond sanctioned limit without guarantor's consent. The Court examined Sections 133 and 139 and held that surety is liable only for original sanctioned amount, not altered obligations.

C. Creditor's Omission to Do What Duty Requires
The classic example from the Act itself:

"A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B promises that he will at least once a month see M make up the cash. B omits to do so. A is not liable for subsequent misappropriation."

Applied in Wandoor Jupiter Chits (P) Ltd. v. K.P. Mathew & Anr. (15 June 1979, Kerala HC): Court held Section 139 embodies the principle that creditor must not prejudice the eventual remedy of surety against principal debtor.

D. Concealment / Non-disclosure of Material Facts at Time of Guarantee
If creditor knew borrower was already defaulting and took guarantee without disclosure, it is fraud under Section 142 and 143 - guarantee void.

E. Under Negotiable Instruments Context
Bhoovaraha Kounder v. Bhoovarahamurthy Rao 2000 (100) CC 250 - where guarantee was for a bill, failure to give notice of dishonour as required by NI Act discharged guarantor. Bank's petition was dismissed in absence of notice.

3. What Does NOT Amount to Discharge?

Courts have consistently rejected these defences:

1. Bank did not send monthly default notices to guarantor - Not a duty under Section 139 unless guarantee deed itself makes it a duty.
2. Bank did not inform guarantor about NPA declaration / SARFAESI notice to borrower - SARFAESI Section 13(2) notice to borrower need not be copied to guarantor, but Section 13(12) requires notice to guarantor before sale. Failure to give that sale notice can be challenged.
3. Bank gave extra time to borrower without suing immediately - Section 135: Mere forbearance, not a contract to give time, does not discharge. Must be a binding agreement to give time.
4. Resolution Plan under IBC approved for borrower - Lalit Kumar Jain v. Union of India (2021) Supreme Court held that since contract of guarantee is separate and independent, even if borrower is discharged by operation of law, guarantor liability continues.

4. Practical Test Courts Apply for "Failure to Inform"

If you are a guarantor pleading discharge, you must prove:

1. What was the specific duty of the creditor to inform? (Show from guarantee deed or from nature of fidelity guarantee)
2. How did omission impair your remedy? e.g., You could have paid and recovered when borrower still had assets, but by the time you were informed assets were gone.
3. Quantify impairment. Section 141 says discharge only to extent of value of security lost.

If you are a Bank, to protect yourself:

• Insert express waiver of notice of default
• Insert consent to variance, extension of time, release of security
• Keep proof of annual balance confirmation to guarantor to avoid limitation issues - Syndicate Bank v. Channaveerappa Beleri (2006) 1 SCC 506 - continuing guarantee remains alive.

5. Checklist for Litigation

For Guarantor:

• Is it a continuing guarantee? Revoke under Section 130 by notice for future transactions.
• Plead Section 133 (variance), 135 (composition with debtor), 139 (impairment), 141 (loss of security) together.
• Seek discovery: Did bank enhance limit? Did bank release collateral?
• File early: Limitation for creditor vs guarantor is 3 years from invocation.

For Creditor:

• Invocation letter to guarantor immediately after NPA - not legally mandatory for discharge but creates equity.
• Do not vary sanction terms without fresh guarantor consent letter.