The Himachal Pradesh High Court has ruled that the liability of a guarantor for a loan from a bank is equal to that of the principal borrower.
The High Court has affirmed that a loan guarantor’s liability is co-extensive with that of the principal borrower, meaning the lender is not required to exhaust recovery options against the borrower first before proceeding against the guarantor.
The bank or lender is not obligated to exhaust all recovery measures from the principal borrower before taking action against the guarantor. It is entirely the discretion of the bank (decree-holder) to decide from whom it wishes to pursue recovery first.
The Kangra Central Cooperative Bank filed a civil suit in 2012 against the main borrower, M/s Akhil Steel Traders, and the guarantors for recovery of ₹10,99,287. The main borrower had taken a loan of ₹10 lakh in 2009, for which the petitioners had executed a guarantee deed as guarantors.
The Senior Civil Judge, Nadaun (Hamirpur District), ruled in favor of the bank on February 26, 2019, holding all defendants jointly liable with 12.50 percent interest. The decision was not challenged in any court, making it final.
The bank subsequently filed an execution petition for recovery, which the trial court heard and issued a warrant for the sale of the guarantors’ property on March 28, 2026. The guarantors argued that since the principal borrower had sufficient assets, the bank should recover from him first.
The court clarified that under the law, unless otherwise provided in the contract, the guarantor’s liability is equal to that of the principal borrower. A guarantor cannot require the bank to first seek legal remedies against the principal borrower before making payment.
A bank or financial institution has the absolute discretion to sue or initiate recovery and asset auction proceedings against the guarantor directly without first chasing the primary debtor.
Under Section 128 of the Indian Contract Act, 1872, the obligation of a surety (guarantor) is equal to that of the main borrower, unless stated otherwise in the contract.
