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

Punjab National Bank lent Rs 8,00,000 to Gupta Steels on the guarantee of Harish. Harish paid the whole Rs 8,00,000 to the bank after Gupta Steels defaulted on the due date. Which statement best describes Harish's position against Gupta Steels?

Harish steps into the bank's shoes. On payment of everything he was liable for, after the debt had become due, the surety is invested with all the rights the creditor had against the principal debtor, without needing any separate assignment.

  1. AHe is invested with all the rights the bank had against Gupta SteelsCorrect
  2. BHe can only claim the amount as a gift from the bank
  3. CHe has no rights until the bank assigns the debt in writing
  4. DHe can recover only half, as the bank bore part of the risk

Explanation

Once the guaranteed debt is due and the surety pays all that he is liable for, he is invested with all the rights the creditor had against the principal debtor. No separate assignment is required, which makes option 3 wrong. There is no rule limiting recovery to half.

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