(1) Except as otherwise provided for in the
contract, the surety's obligation shall be as follows:
(a) Obligation of the surety shall arise at the time when the
debtor fails to discharge the obligation to be discharged
by him or her.
(b) Obligation of the surety shall be the same as the
obligation of the debtor who has to repay the loan or
discharge the obligation, and the surety shall remain
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liable until the debtor becomes free from the obligation
to repay or discharge.
(c) Obligation of the surety shall not be discharged merely
because the principal debtor becomes free from the
obligation by operation of law.
(2) Notwithstanding anything contained in sub-section (1),
if both security and guarantee have been given for any loan or
obligation, the surety shall not be liable to the extent covered by the
security so provided.
(3) A contract of guarantee shall be effective immediately
when the principal debtor breaches the obligation of repayment or
discharging liability to the creditor, and the creditor may cause the
surety to discharge such liability.
Explanation: For the purposes of this Part, the term
“creditor” means a person who has lent a loan, and also includes a
person who is entitled to obtain any benefit from, or have any act
done, by the person who is bound to repay the loan or discharge the
liability.
(4) Notwithstanding anything contained in sub-section (3),
the creditor shall give a notice to the principal debtor to perform the
contract according to its terms and conditions before claiming the
surety under the contract of guarantee for the repayment of the
amount not paid or discharge of the liability not discharged
according to the contract.
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