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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Meera promises Bank X that if Rohan fails to repay his loan, she will repay it. In this arrangement, who is the 'principal debtor' under the Indian Contract Act, 1872?

Rohan is the principal debtor because the guarantee is given in respect of his default. Meera, who gives the guarantee, is the surety, and Bank X, to whom it is given, is the creditor. This follows the definitions in Section 126.

  1. AMeera, because she gave the promise
  2. BBank X, because it is the lender
  3. CRohan, because the guarantee is given in respect of his defaultCorrect
  4. DBoth Meera and Rohan jointly

Explanation

Under Section 126, the principal debtor is the person in respect of whose default the guarantee is given. Rohan is the borrower whose default is covered. Meera is the surety and Bank X is the creditor, so the option naming Meera confuses the surety with the debtor.

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