I. Statutory Provision - The Law

Section 133 - Discharge of surety by variance in terms of contract:

Any variance, made without the surety's consent, in the terms of the contract between the principal and the creditor, discharges the surety as to transactions subsequent to the variance.[debtor]

Illustration: A guarantees loan of Rs 10 Lakhs to B from Bank for 1 year at 10%. Bank later extends tenure to 3 years at 12% without asking A. A is discharged.

Essentials to Claim Discharge:

1. Existence of valid contract of guarantee - Sec 126
2. There is a contract between Creditor (Bank) and Principal Debtor (Company)
3. Variance / alteration in terms of that principal contract
4. Alteration made WITHOUT consent of surety / guarantor
5. Alteration is material - Not trivial

Once proved, discharge is automatic and complete for future liability. No need to prove prejudice or loss.

II. What Constitutes "Variance" or "Alteration"?

Courts have interpreted widely. Any change that alters risk of guarantor.

A. Variances That DISCHARGE Guarantor:

1. Extension of time for repayment: Bank grants more time to borrower to pay without guarantor consent.
2. Enhancement of loan amount / limit: CC limit increased from 1 Cr to 2 Cr, guarantor had guaranteed only 1 Cr.
3. Change in interest rate: Increasing rate, changing from fixed to floating, adding penal interest clause.
4. Change in repayment schedule: Converting term loan to WCTL, restructuring under OTS, RBI Restructuring 2.0.
5. Release or change of security: Bank releases mortgage/hypothecation given by borrower, which reduces bank's remedy, increasing guarantor's risk - Sec 139 also.
6. Change in constitution of contract: Adding new facility, converting loan to foreign currency loan.
7. Compounding / Settlement: Bank enters into compromise with borrower for lesser amount without guarantor.

B. Variances That Do NOT Discharge:

1. Trivial or non-material changes: Change of branch, change of account number, administrative changes.
2. Where guarantor consents in advance: If guarantee deed has clause "Guarantor consents to any variance / extension / increase without further consent" - This is valid, then Sec 133 does NOT apply. Most bank guarantee deeds have this blanket consent clause.
3. Forbearance to sue - Sec 135: Mere forbearance or delay by bank to file suit against borrower does NOT discharge, unless there is a binding agreement not to sue.
4. Where variance is for benefit of guarantor - Some High Courts held if variance reduces liability, not discharge - but Supreme Court says even beneficial variance if without consent, still discharge, because surety is favorite of law.

III. Difference Between Sec 133, 135, 139, 140

This is frequently confused in DRT:

• Sec 133 - Variance in terms: Main contract changed.
• Sec 135 - Composition / Promise not to sue: Bank makes composition with borrower or promises to give time by binding contract.
• Sec 139 - Impairing surety's remedy: Bank does act inconsistent with surety's rights - e.g., loses security.
• Sec 135 vs 133: Under Sec 135, mere giving time without contract does not discharge. Under Sec 133, any variance even with time, discharges.

IV. Why This is Critical in Bank Lending - Personal Guarantee

Every bank personal guarantee deed contains:

"The guarantor agrees that any variance, extension, modification, restructuring, OTS, enhancement, release of security made by Bank to Borrower without reference to guarantor shall not discharge guarantor. Guarantor gives consent in advance under Sec 133."

Is such advance blanket consent valid?

Yes, as per Supreme Court in SBI v. B. S. Agricultural Industries and Industrial Finance Corporation v. Cannanore Spinning. Section 133 allows consent. If consent is given in advance in guarantee deed, subsequent variance does NOT discharge.

Therefore, to claim Sec 133, guarantor must attack the consent clause:

• Consent was not informed - Unconscionable contract, undue influence
• Guarantee deed signed blank
• Variance is so fundamental that it amounts to new contract, not mere variance - Then advance consent does not cover.

V. Leading Case Laws - Supreme Court and High Courts

This is the most litigated provision in DRT.

Supreme Court - Foundation Cases:

1. Amrit Lal Goverdhan Lalan v. State Bank of Travancore, (1968) 3 SCR 724 - The Classic:

Facts: A guaranteed cash credit for B for purchase of tobacco. Bank later allowed B to use facility for other commodities without guarantor consent.
SC held: This is variance in purpose of loan. Guarantor discharged u/s 133. Principle: Any change in contract which alters nature of business or risk discharges surety. Surety is favorite of law.

2. State Bank of India v. B. S. Agricultural Industries (I) Ltd., (2009) 5 SCC 123:

Facts: Guarantee deed had clause authorizing bank to vary terms without consent. Bank enhanced limit.
SC held: Advance consent in guarantee deed is valid consent under Sec 133. Guarantor cannot claim discharge if he has already consented to future variances. Guarantor bound.
Doctrine: Sec 133 requires consent, consent can be prior. Bank guarantee deed blanket clause enforceable.

3. M.S. Anirudhan v. Thomco's Bank Ltd., AIR 1963 SC 746:

SC defined scope of variance - Even change in mode of payment of installments is variance. Bank allowed borrower to pay in different mode, increased risk, guarantor discharged.

4. State Bank of India v. Indexport Registered, (1992) 3 SCC 159:

SC held guarantor liability is co-extensive but separate. If principal contract altered, guarantor discharged, but bank can still sue principal debtor. Also held bank need not first sue borrower.

5. Industrial Finance Corp. of India Ltd. v. Cannanore Spinning & Weaving Mills, AIR 2002 SC 1841:

Facts: IFCI gave loan, later rescheduled repayment under RBI restructuring scheme without guarantor consent. Guarantor claimed discharge.
SC held: Restructuring/rescheduling amounts to variance in terms of original contract. If done without consent, discharges guarantor u/s 133, unless guarantee deed contains consent clause covering restructuring. In this case, deed had such clause, so guarantor NOT discharged.

6. SBI v. Premco Saw Mill, (1983) 1 SCC 52:

Bank extended time for repayment by entering into new agreement with borrower. SC held this is variance, guarantor discharged. Distinguished from mere forbearance - If there is binding agreement to give time, it is variance u/s 135 read with 133.

7. Lata Construction v. Rameshchandra Ramniklal Shah, (2000) 1 SCC 586:

SC held any material alteration even if beneficial to surety still discharges if without consent. Surety has right to decide whether variance is beneficial or not. Bank cannot decide for him.

8. Syndicate Bank v. Channaveerappa Belleri, (2006) 11 SCC 506 - Rescheduling:

SC held OTS - One Time Settlement between bank and borrower without guarantor consent - amounts to variance. Guarantor discharged for balance, if OTS not honored.

High Courts / DRT - Recent Banking Cases:

9. Calcutta High Court - Arun Kumar Agarwalla v. SBI, AIR 2015 Cal 96:

Bank increased CC limit from 50 Lakhs to 80 Lakhs without fresh guarantee. Guarantor who guaranteed 50 Lakhs claimed discharge for entire amount.
Court held: Guarantor discharged for additional 30 Lakhs, but remains liable for original 50 Lakhs if variation is severable. If inseparable, fully discharged.

10. Delhi High Court - Essar Steel / State Bank of India - 2019 - IBC + Guarantee + Variance:

Company under CIRP, Resolution Plan reduced loan amount. Bank invoked personal guarantee for full original amount.
High Court held Resolution Plan approved by CoC is variance in principal contract under Sec 133. If guarantor not party to CoC and no consent, guarantor discharged to extent of reduction. However, Supreme Court in Lalit Kumar Jain v. Union of India (2021) 9 SCC 321 clarified IBC resolution does NOT automatically discharge personal guarantor, unless plan expressly says. Need to read together - Resolution Plan is deemed consent by law.

11. DRT / DRAT - Common Rulings:

Bank releasing mortgaged property without guarantor consent: If bank releases security given by borrower, guarantor discharged under Sec 139 to extent of security value. Case: State Bank of Saurashtra v. Chitranjan Rangnath Raja, (1980) 4 SCC 516 - SC held if creditor loses security, surety discharged to extent of that security.

Enhancement of interest from 12% to 18% without consent: DRT Pune 2022 - Bank of Maharashtra v. Sunil Industries - Held discharge of guarantor for enhanced portion.

VI. How Banks Protect Against Sec 133 - And How Guarantor Can Still Win

Bank's Protection:

1. Insert clause: "Under Sec 133, 134, 135, 139, 140, 141 of Indian Contract Act, surety agrees to give continuing guarantee and consents to any variance, extension, compromise, OTS, release of security, etc."
2. Take fresh guarantee after each restructuring/enhancement.
3. Obtain specific consent letter from guarantor at time of restructuring - "I consent to rescheduling dated..."

Guarantor's Attack Strategy to Claim Discharge:

1. No valid consent: Guarantee deed is standard printed form, signed under undue influence, no free consent under Sec 14. Blanket consent unconscionable - Argue under Central Inland Water Transport Corp v. Brojo Nath Ganguly, AIR 1986 SC 1571 - Unconscionable contract.
2. Variance is novation - Sec 62: If change is so fundamental that old contract ceases to exist and new contract comes - e.g., loan for trading converted to project loan - Then it is not variance but novation. Novation discharges guarantor automatically, even with advance consent clause, because old guarantee refers to old contract.
3. Bank lost security - Sec 141: Bank failed to keep security intact. Guarantor entitled to benefit of every security bank has. If lost, discharged.
4. OTS without consent: If bank does OTS with borrower for less amount and borrower defaults on OTS, bank cannot recover balance from guarantor if guarantor not party - Variation.

VII. Practical Checklist - For Filing Sec 133 Defense in DRT

If you are guarantor facing bank recovery:

1. Get original sanction letter vs revised sanction letter - Compare tenure, interest, limit, purpose.
2. Check Guarantee Deed - Does it have blanket consent clause? If yes, check if signed, explained?
3. Was any restructuring / Covid Moratorium / OTS / Enhancement done? Was separate consent taken?
4. File application under Sec 133 in DRT - Burden on guarantor to prove variance, then burden shifts to bank to prove consent.
5. Cite Amrit Lal + B.S. Agricultural Industries - Show consent clause if any, but argue novation.

Result if successful: Guarantee for transactions AFTER variance is void. Bank can still recover for dues accrued BEFORE variance. But if variance from inception, full discharge.