CASES WHERE SUCH VARIATION CLAUSE WAS GRANTED LEGALITY

A.R. Krishnaswami Aiyar v. Travancore National Bank1

"Although a composition bond between the principal debtor and the creditor extinguishes the debt
to the principal debtor it does not absolve the sureties from their liability under surety bond, where
the surety had expressly contracted to remain liable notwithstanding the discharge of the principal,
and therefore, the discharge of the principal cannot be said to be implied discharge of the surety."

O. S. Appeal No. 276 of 1997, dated January 29, 1998

"As can be seen from Clause 9 extracted above, defendant No. 2 specifically agreed that he shall
not be entitled to any of the rights conferred on sureties by Sections 133, 134, 135, 139 and 141 of
the Contract Act. It is not disputed that this letter of guarantee was executed by defendant No. 2.
In the light of this specific clause contained in the letter of guarantee, excluding the application
of Section 135 of the Contract Act, defendant No. 2 cannot now turn round and say that he has got
the right under Section 135 of the Contract Act."

Citibank (N.A.) v. Juggilal Kamlapat Jute Mills Co. Ltd.2

“It was not necessary for the Legislature to provide the words "in the absence of any contract"
in section 133 or 135 or 141, because the sections themselves speak of consent of the surety
regarding variance in the terms of the contract between the principal debtor and the creditor,
composition with the principal debtor, etc. It has also been further held that in the presence of the
words "without the surety's contract", the words "in the absence of any contract to the contrary"
would have been surplus.”

R. Lilavati v. Bank of Baroda3

"The Contract Act has created rights and liabilities. But the parties have got a right to contract out
of the rights and liabilities mentioned in the contract. That is envisaged by section 128 of the

1
AIR 1940 Mad 437
2
AIR 1982 Delhi 487
3
1986 60 CompCas 658 Kar
Contract Act. Therefore, merely because we do not find words 'notwithstanding anything
contained to the contrary, etc.' in section 141, it does not follow that the parties cannot contract out
of the rights and liabilities laid down in section 141 of the Contract Act. In this case, defendant
No. 4 has agreed that she will not claim the benefit given to her under section 141 of the Contract
Act. She herself is a party to that surety bond. Therefore, it is not open to her now to contend that
the said clause is either bad at law or is not enforceable."

T. Raju Setty v. Bank of Baroda4

“It is open to a party to a surety bond to give up his rights available under Chapter VIII of the Act
provided the contract is not either illegal or forbidden by law. In the absence of any fraud pleaded
and proved, such contract cannot also be termed as opposed to the provisions contained in section
23 of the Act.”

SBI v Dharam Kumar5

"The right conferred on the guarantor under Section 133 of the Act could be waived by specific
agreement in the deed of guarantee. Such an agreement would amount to consent within the
meaning of the section 133 of the Act."

Suresh Mahajan v. Myveneers6

“In order to attract section 23 of the Act, it is not necessary that the contract should be tainted with
illegality but it should contain terms which are so unfair and unreasonable that they shock the
conscience of the court. All that can be said is that the said observations are in general terms and
not with reference to the specific terms of the contract. Further, we have already pointed out that
there is nothing unusual or illegal for a party to give up his right in order to secure a certain thing.
In the instant case, defendants Nos. 2 and 3 wanted that the plaintiff should advance the loan to
defendant No. 1. In order to ensure the payment of the amount advanced by the plaintiff to

4
1991 (4) KarLJ 475
5
2000 102 Comp Cas 166 Mad, (1998) IIMLJ 774
6
[1990] ILR 2910 (Kar)
defendant No. 1, they went to the extent of giving up their rights under the aforesaid provisions
contained in Chapter VIII of the Act. Therefore, there is nothing unfair and unreasonable in the
terms contained in the surety bond nor is it possible to hold that it shocks the conscience of the
court. In commercial transactions it is a normal thing to give up certain rights to secure certain
benefits. It is on such contract, that commercial transaction takes place. In the commercial world
such contracts are not uncommon.”

Indian Bank v. S. Krishnaswamy7

“It is observed in the said case that unless the sureties had expressly bound themselves for
variation, they are liable to be discharged. As indicated earlier, in the instant case, it is consented
by the guarantor for variation in the relevant clauses of exhibit A-4 agreement.”

7
AIR 1990 Mad 115