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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Hari Exports borrows Rs 10 lakh from a bank on the guarantee of Anita. The bank holds a mortgage over Hari's shed, valued at Rs 4 lakh, when the guarantee is signed. Without Anita's consent the bank releases the mortgage. Hari defaults and the bank claims Rs 10 lakh from Anita. What is the maximum Anita can be made to pay?

Anita can be made to pay at most Rs 6 lakh. The bank released a Rs 4 lakh security without her consent, so under Section 141 she is discharged to that extent, reducing the Rs 10 lakh claim by Rs 4 lakh.

  1. ARs 6 lakhCorrect
  2. BRs 4 lakh
  3. CRs 10 lakh
  4. DRs 14 lakh

Explanation

Under Section 141, the surety is discharged to the extent of the value of the security the creditor parted with without consent. Discharge is Rs 4 lakh, so liability is 10 - 4 = Rs 6 lakh. Check: 6 + 4 = 10. Rs 4 lakh is the discharged amount, not the remaining liability. Rs 10 lakh ignores the discharge.

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