1. Statutory Framework

Section 146 - Co-sureties liable to contribute equally:

Where two or more persons are co-sureties for the same debt or duty, either jointly or severally and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Ingredients:

• Same debt/duty guaranteed by more than one person - they are called co-sureties
• Even if different contracts, different dates, no knowledge of each other - still co-sureties
• In absence of contract to contrary, equal share

Section 147 - Liability of co-sureties bound in different sums:

Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

Illustration under Sec 147 - The textbook example:

A, B and C are sureties for D. A guarantees 10,000, B guarantees 20,000, C guarantees 40,000. D defaults for 30,000.

• Under Sec 146 principle of equal contribution, each should pay 10,000.
• All are within limit, so 10k each.

If default is 60,000:

• Equal share would be 20k each.
• A is capped at 10k (his limit), so he pays 10k.
• Balance 50k shared equally between B and C as far as limits permit -> B 20k (his limit), C 30k.

Section 138 - Effect of release of one co-surety:

Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties.

2. Rights of Co-surety - Full Picture

a) Right of contribution - Sec 146/147
When surety pays more than his share, he can claim contribution from remaining co-sureties.

b) Right against release:
Releasing one co-surety does not discharge others, and released co-surety remains liable to others for contribution.

c) Right to benefit of securities - Sec 141 also applies inter se.

3. Leading Case Laws

1. Sri Chand v. Jagdish Pershad Kishan Chand, AIR 1966 SC 1427 - The locus classicus on Sec 138

Facts: Three co-sureties guaranteed a debt. Creditor released one co-surety. Other two argued they are discharged.

Supreme Court held:

• Release of one co-surety does NOT discharge others - creditor can still recover full debt from remaining.
• Released co-surety will remain liable to the others for contribution in event of default. The mere fact that obligation may be enforced severally does not make liability distinct.

Principle now codified in Sec 138 explanation: Bank's right to recover full debt remains, and paying surety can still recover released surety's equal share under Right of Contribution Sec 146.

2. Krishna Pillai Rajasekharan Nair v. Padmanabha Pillai, Supreme Court - Co-mortgagor as co-surety

Court examined: When co-debtor or co-mortgagor pays more than his share to redeem mortgage, redeeming mortgagor is principal debtor to extent of his share and a surety to extent of share of other co-mortgagors. His right is strictly speaking a right of reimbursement or contribution.

Applied Sec 146 principle to co-mortgagors even if not called sureties.

3. Ganeshi Lal v. Joti Pershad, Supreme Court

Held: Redeeming co-mortgagor being only a surety for other co-mortgagors, his right is right of reimbursement or contribution, and in law, when we have regard to principles of equity and justice, there should be no difference between case where he discharges unsecured debt and secured debt.

Extends contribution to secured co-sureties.

4. State Bank of India v. Saksaria Sugar Mills Ltd. AIR 1986 SC 868

SC held liability of sureties is co-extensive with principal debtor, creditor can proceed against principal debtor or sureties, unless otherwise provided. Same principle applies to co-sureties inter se - co-surety cannot insist creditor should proceed against principal debtor or other co-surety first.

5. Bank of Bihar Ltd. v. Damodar Prasad AIR 1969 SC 297

SC held surety's liability arises immediately on default, even before creditor exhausts remedies against principal debtor. For co-sureties, means one co-surety paying can immediately claim contribution without waiting for creditor to sue others.

6. Mahant Singh v. U Ba Yi AIR 1939 PC - Release effect

Privy Council held: Releasing of one co-surety will not discharge others, and released co-surety remains liable to others for contribution.

4. Practical Scenarios

Scenario 1 - Three co-guarantors for Rs 30 lakh loan:
A, B, C guarantee jointly. Principal defaults. Bank recovers entire 30 lakh from A alone.

• A can sue B for 10 lakh and C for 10 lakh under Sec 146.

Scenario 2 - Different sums:
A - 5 lakh, B - 10 lakh, C - 15 lakh for 12 lakh default.
Equal share = 4 lakh each, all within limits, so each 4 lakh. If A paid 12 lakh, he recovers 4 lakh each from B, C.

Scenario 3 - Bank releases C under OTS:
Bank releases C for 2 lakh settlement. Bank still recovers balance 10 lakh from A, B.

• A pays 10 lakh, A can still claim 1/3 from C i.e. contribution, despite release. Release by creditor does not free surety so released from his responsibility to other sureties - Sec 138.

5. Defences to Contribution Claim

Co-surety can defend if:

• There was contract to contrary - e.g., agreement that A is primary surety, B is only secondary - then no equal contribution
• Paying surety paid voluntarily when not liable (e.g., debt time-barred)
• Paying surety got benefit of security and did not share - Sec 141 reduces contribution

Limitation: Suit for contribution is 3 years from date of payment in excess of share under Article 43 of Limitation Act.