(1.)The general rule of equity expounded by Sir Samuel Romilly as counsel and accepted by the Court of Chancery in Craythorne v. Swinburne (1807) 14 Ves 160, that the surety will be entitled to every remedy which the creditor has against the principal debtor, including the enforcement of every security stands statutorily recognised and incorporated in Section 141 of the Indian Contract Act as regards the discharge of a surety from liability, when the creditor parts with or loses the security held by him with, however, an insignificant variation to the effect that the surety is entitled to the securities given to the creditor, both before and after the contract of surety.
(2.)It is on this score thus Section 141 of the Act ought to be noticed at some length more so by reason of the same being the sheet-anchor in support of Respondents' presentation before this Court in the instant appeal to the effect that the surety is entitled to the securities given to the creditor, both before and after the contract of surety and in the event the same stands dissipated then and in that event there is cessation of liability to the extent of such dissipation or extinction. An indeed bold proposition but the same stands accepted by the High Court and hence the appeal before this Court. Before, however, adverting to the issue as above, it would be rather convenient to note certain decisions of this Court as well as of the English Court for further appreciation of the matter.
(3.)In State of Madhya Pradesh v. Kaluram [1967(1) SCR 266 : AIR 1967 SC 1105] this Court pointedly stated that the expression "security" in the Section is not used in any technical sense; it includes all rights which the creditor has against the property on the date of contract. In Kaluram (supra) this Court also lent its approval of Hannen, J., Wulff and Billing v. Jay, (1872 (7) QB 756), wherein the learned Judge stated the law as follows:-
".... I take it to be established that the defendant became surety upon the faith of there being some real and substantial security pledged, as well as his own credit, to the plaintiff; and he was entitled, therefore, to the benefit of that real and substantial security in the event of his being called on to fulfil his duty as a surety, and to pay the debt for which he had so become surety. He will, however, be discharged from his liability as surety if the creditors have put it out of their power to hand over to the surety the means of recouping himself by the security given by the principal. That doctrine is very clearly expressed in the notes in Rees vs. Barrington, 2 White and T.L.C., (4th Ed). at p. 1002 - 'As a surety, on payment of the debt, is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor, who has had, or ought to have had, them in all full possession or power, loses them or permits them to get into the possession of the debtor, or does not make them effectual by giving proper notice, the surety to the extent of such security will be discharged. A surety, moreover, will be released if the creditor, by reason of what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands" - and it is on this score this Court, relying on the aforesaid, in Kaluram (supra) observed that "The surety is entitled on payment of the debt or performance of all that he is liable for to the benefit of the rights of the creditor against the principal debtor which arise out of the transaction which gives rise to the right or liability. The surety is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or parted with the security without the consent of the surety, the latter is by the express provision contained in S. 141, discharged to the extent of the value of the security lost or parted with".