Section 17: Circumstance in which surety will be free from liability

1) Except when otherwise provided for in the contract, the surety shall be free from liability to the extent as mentioned in any of the following circumstances:

(a) In case the person who has to repay a loan or fulfil a liability changes the terms and conditions of the contract in such a way as to have a substantial impact on the contract without the approval of the surety, with respect to the transaction to be carried out after such changes.

(b) In case a contract is concluded to absolve from liability the person who has to fulfil the concerning matter in respect to which the guarantee has been provided.

(c) In case the person who has to repay a loan or fulfil a liability is absolved from liability, or in case the loan is waived due to the action of the creditors.

(d) In case the creditor agrees to absolve the debtor from the liability by collecting a sum less than what is due, to provide an additional time limit for repaying the loan, or not to initiate a lawsuit.

(e) In case any action of the creditors causes an adverse impact on the surety’s right to legal remedy against the person who is under obligation to repay the loan or fulfil the liability.

(f) In case the creditor loses, damages or returns any security obtained by him from the debtors to the extent of the value of that security.

(g) To the extent to which the person who is under obligation to repay a loan or fulfil a liability has repaid the loan or fulfilled the liability according to the contract.

2) Notwithstanding anything contained in Sub-section (1), the surety shall not be deemed to have been absolved from the liability, except when otherwise provided for in the contract, simply because the creditor fails to initiate legal action against the surety or try to realise the amount to be realised by him/her in time.

3) In case there are two or more sureties, and in case the creditors absolve any one of them from the liability, the other surety/sureties shall not be free from his/her/their share in the liability. In case the share in the liability of the surety/sureties can not be separated, no surety shall be deemed to have been absolved from his liability simply because; the creditor has absolved him/her from the liability.

4) With respect to a contract relating to a guarantee which concerned with the fulfilment of a liability, the surety shall not be deemed to have been absolved from the obligation of fulfilling the liability under the contract simply because a dispute has arisen among the parties in relation to that contract, except when otherwise provided for in the contract.